Markets’ Scary Divergence Is Worrisome

The bond market is failing its haven role and that could spell trouble for the long bull market in stocks

By Spencer Jakab

U.S. stocks fell sharply Wednesday, but the way that other asset classes acted is notable.
U.S. stocks fell sharply Wednesday, but the way that other asset classes acted is notable. Photo: brendan mcdermid/Reuters 

Is this the big one? Not even close, but there is something unusual and unsettling afoot in financial markets.

A loss of 831 Dow points just isn’t what it used to be—the 3.1% drop in the index was only the 80th biggest decline since the 1950s and not even the worst this year. But the way that other asset classes reacted is notable.

Despite the selloff in stocks, financial markets overall didn’t exhibit a classic flight to safety.

Two safe assets, gold and bonds, have had a horrible year and were essentially flat on Wednesday.

Treasurys have been the real “break glass in case of emergency” investment in recent years.

Their weakness and corresponding rise in yields so far this year finally have taken a toll on risky assets. Since the end of 2017, yields on two-year Treasurys have risen by nearly a full percentage point and the 10-year note’s yield has risen by eight-tenths of a point, even as stocks climbed until recently. It isn’t unusual for bonds to suffer as stocks prosper.

But on days of sharp stock market tumbles, it is almost unheard of for 10-year note yields not to rally. For example, during the biggest one-day stock-market decline in history, in 1987, the 10-year yield fell to 9.4% from 10.15%. One of the only exceptions was a particularly scary day in 2008 when stocks plunged on fears that the global financial system would unravel.

Such existential fears weren’t behind Wednesday’s flattish performance for bonds even as stocks melted down. Instead, it is a sign that the forces behind rising yields are at least as powerful as the traditional, knee-jerk flight to safety. That is in and of itself unsettling. With unemployment at a level last seen in the 1960s, the Federal budget deficit headed towards an unprecedented trillion dollars during an economic expansion, inflation on the upswing and the Federal Reserve in rate-lifting mode even as it slowly unwinds years of quantitative easing, it may be hard to stop this train.

Investors are starting to realize how dependent the longest bull market in history has been on cheap money. That is particularly true for the riskiest segments of the market. While the Dow didn’t even suffer its biggest loss of 2018, the tech-heavy Nasdaq Composite had its biggest drop since Brexit in 2016. Those stocks, traditionally more dependent on investor risk appetite and a lack of satisfactory income-producing alternatives, have been the drivers of the late stage of the bull market.

For a decade now, the Fed has been willing and able to keep a leash on yield breakouts, saving the day for stocks time and again. Wednesday’s market action is a sign that neither may be the case any longer.

Universal Basic Income or Universal Living Wage?

Laura Tyson , Lenny Mendonca  

retirement home

BERKELEY – A universal basic income (UBI) would be both regressive and prohibitively expensive. Yet the idea continues to attract a motley crew of tech and labor leaders, libertarians, and progressives, who fear a coming age of mass technological unemployment.

Similarly, proposals in the United States for a federal jobs guarantee have been gaining momentum on the traditional left. But while such a program could employ millions of workers to deliver basic public services and rebuild and modernize the country’s dilapidated infrastructure, it is no more feasible than a UBI, given current federal budget constraints.

The challenge for the future of work is not really about the quantity of jobs, but their quality, and whether they will pay enough to provide a decent standard of living. Even in developed countries where relatively higher wages encourage the adoption of labor-saving technology, job losses will likely be offset by projected increases in demand for goods and services, driven by productivity and income gains, growing health-care needs, and investment in alternative energy and infrastructure.

But current trends and future projections about the quality of jobs are alarming. The OECD Employment Outlook shows an increase in low-paying jobs, sluggish real (inflation-adjusted) wage growth, and declining employment benefits across advanced economies between 2007 and 2017. And, on average, fewer than one in three job seekers in OECD countries received unemployment compensation during that period.

Since the 2008 financial crisis, job growth in the US has resembled a dumbbell. The number of high-skill, well-paid jobs is increasing, particularly in so-called STEM fields (science, technology, engineering, math), where 2.4 million jobs remain unfilled. At the other end of the skills spectrum, although the number of “gig economy” jobs is growing at three times the pace of GDP, many of the workers filling them are barely scraping by.

Meanwhile, the unemployment rate has remained stubbornly high among workers without a high-school diploma, and in economically challenged rural and urban areas. Without policy changes, the returns to labor will become increasingly uneven as the link between overall productivity growth and wages becomes ever more attenuated.

Though skills training and lifelong learning are needed to equip workers for the jobs of the future, such measures will not be sufficient to ensure decent livelihoods. Complementary policies to provide a basic living wage are essential. In the US, three steps can be taken now to achieve this goal: a substantial increase in the minimum wage and a robust earned income tax credit (EITC), both indexed to regional costs of living and automatically adjusted for inflation; and easy enrollment of eligible workers for federal and state benefits. These benefits should also be pro-rated and portable to cover part-time and gig-economy workers. Together, these three steps would ensure that full-time workers (in one or multiple jobs) do not live in poverty or constant economic insecurity.

Currently, the minimum wage in Fresno, California, is $11 per hour; in San Francisco, it is $15 per hour. Yet, according to the MIT Living Wage Calculator, a worker in a dual-income, single-child household in Fresno needs to earn at least $14 per hour to cover its basic needs; in San Francisco, that same worker must make at least $21 per hour. And if that worker is a single parent, the living wage in each city rises to $25 per hour and $39 per hour, respectively.1

Both companies and governments can help close the gap between living and minimum wages. In 2014, IKEA started paying living wages based on the MIT calculator, and other companies have since followed suit. For their part, local and state governments can close the gap – currently $3 per hour in Fresno and $6 per hour in San Francisco, by raising the minimum wage and expanding EITC coverage and other benefits.

Measures to raise the minimum wage and index it to the cost of living are already underway in many parts of the US. Through legislation or direct voter initiatives, approximately eight million workers have already won minimum-wage increases in recent years, and an additional $5 billion has made it into workers’ pockets since 2017. If applied nationally, a $15 hourly minimum wage (roughly equal to 50% of the economy-wide median wage), adjusted for regional cost-of-living differences, would mean another $144 billion for workers by 2024.

After raising the minimum wage, the next step is to expand the EITC, by broadening its income and eligibility criteria, increasing its size, and making it available in periodic payments instead of an annual lump sum. The EITC has a proven record of success in encouraging work, reducing poverty, boosting educational attainment, increasing intergenerational mobility, and improving maternal and infant health. Even Chris Hughes, a Facebook co-founder and leading UBI booster in Silicon Valley, calls for an expanded EITC.

Some US states are already ahead of others on this front. By extending its EITC to include gig-economy work, and broadening the range of eligible income, California has increased the number of claims from around 400,000 in 2016 to 1.3 million in 2017. Over 90% of California’s EITC credits go to low-income families with children, and 80% of the children benefiting from it are young people of color.

But more work needs to be done. Fewer than one in five eligible Californians knows about the state’s EITC, which translates into $2 billion in unclaimed credits each year. Similarly, one in five eligible workers nationwide (more than six million people) do not file for the federal EITC each year, losing out on some $16 billion in unclaimed credits. Clearly, more aggressive public marketing programs are required to raise awareness about the EITC at both the state and federal levels. And beyond that, the federal government should strengthen incentives for states to match federal EITC payments based on their cost of living.

Enrollment in federal benefits such as Medicaid, the Supplemental Nutrition Assistance Program, the Children’s Health Insurance Program, and Pell Grants also needs to be simplified. Currently, more than $50 billion worth of federal benefits goes unclaimed every year. To ensure that struggling households receive the benefits to which they are entitled, five states are piloting a simplified auto-enrollment program in partnership with Code for America.

There will always be work to be done. So, instead of pursuing fantasy UBI or job guarantees, why not take measures that provide a universal living wage for work now and for the work of the future?

Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group.

Lenny Mendonca, Chairman of New America, is Senior Partner Emeritus at McKinsey & Company.

The economic cost of fraying trust in Europe

Mutual suspicion among EU member states threatens to unravel inter-dependence

Martin Sandbu 


The EU is often rightly described as an international legal order. But its formidable legalism makes it easy to lose sight of another, equally profound aspect of the European project: the decades-long cultivation of trust between its members. Quite apart from challenges to the rule of law, the withering of that trust threatens to debilitate Europe — politically, of course, but economically as well.

Take the case of Lyudmyla Kozlovska, a Ukrainian political activist who was refused entry and deported from the EU at Brussels airport last month. Ms Kozlovska had attracted the ire of Poland’s government for the work of a rights organisation she set up and runs with her Polish husband in Warsaw. While on a trip to Ukraine she was banned from returning home and put on a blacklist in the Schengen Information System. In this way, the Polish government committed all the members of Europe’s borderless travel area — including those Belgian border guards — to excluding her from their territory.

Warsaw claims irregularities in the funding of Ms Kozlovska’s non-governmental organisation. Even if true, this seems far below the threshold of seriousness that would justify an activist’s expulsion from most of Europe at one government’s say so. The more plausible motive is in response to a Facebook post last year by her husband that called for peaceful civil disobedience against the Polish government’s crackdown on independent institutions.

Warsaw now faces deep suspicion that it has used a mechanism designed to protect national security to punish an irritating democracy activist. In defiance of the Polish move, Germany issued Ms Kozlovska with a short-term visa last week so she could address legislators in the Bundestag. This is an extraordinary series of events. The Schengen treaty was a trailblazing step in international governance. Doing away with border controls (in normal times) required an unprecedented degree of solidarity and trust that other countries would treat each member’s security as seriously as its own. The Kozlovska case shows how fragile this is. Once the interdependence built into the Schengen Agreement is seen as exploitable for domestic politics, its long-term sustainability is surely in question.

This is about more than Ms Kozlovska, and hits at the political foundation of the Schengen accord. It goes beyond it too. Once you start looking, the whole fabric of European co-operation relies not just on common legislation but on shared expectations of how members use the powers that remain in their hands.

Weak control of money laundering in Latvia and Estonia (as well as more established financial centres) undermines the integrity of the entire European banking system. Malta’s liberal granting of citizenship is an oligarch’s fast-track to the rights and freedoms afforded by the EU as a whole. Disenchantment with eurozone countries’ budget policies has meant the bloc’s fiscal rules have fallen into disrepute, even as they have been made ever more detailed. These and many other examples involve member states not so much breaking the law as applying it or interpreting it in ways that flout shared European interests.

That distrust makes it harder for EU countries to unite politically is obvious. The economic damage is less apparent, but just as grave. Europe’s economic strength depends not only on the legal order of its internal market and compliance with its formal rules. It also depends on the degree of trust between its participants.

Trust makes for better laws. It is easier to make the trade-offs necessary for broad prosperity and growth with shared confidence that nobody is taking undue advantage of others. Those who trust one another will more often comply voluntarily with common rules, requiring fewer resources for monitoring and enforcement.

But trust also economises on the need for codes, contracts and lawyering in the first place. Economies with a high degree of mutual trust enjoy the tremendous advantage of not having to codify the terms of economic activity excessively. Trust ensures that any legal or contractual gaps are filled by a shared understanding of how things should be done and a willingness to act on that understanding. The predictability this creates is a huge economic asset.

One substitute for lost trust is more detailed legislation. (Independent legal analysis now argues the Belgians should have questioned the reasons behind Ms Kozlovska’s blacklisting before acting on it; no doubt litigation and jurisprudence will follow.) But laws and contracts cannot cover all the cracks of undefinable events as well as trust can. In any case the loss of trust limits how much law can be passed to take its place.

If stricter rules cannot defuse a sense that common institutions are being unfairly exploited, the logical reaction will be a push to roll back mutual interdependence. Abusing the trust that smooths economic activity across Europe is short-sighted in the extreme. It will lead either to more centralised lawmaking, or to the slow disintegration of cross-border economic links.

Smaller, less developed countries, with a weaker base of domestic trust to start on, would suffer most from such a future. It would be a tragedy if the newer member states, which gained the most from joining a European ecosystem of trust, were the ones who blighted it.

Dow Drops 832 Points and No One Has a Clue

By Ben Levisohn

Dow Drops 832 Points and No One Has a Clue

Stocks just suffered a drubbing like few others—and no one really knows why. Even worse, there’s little agreement on what comes next.

The S&P 500slumped 3.3% to 2785.68, its biggest decline since Feb. 8, while the Dow Jones Industrial Averagedropped 831.83 points, or 3.1%, to 25,598.74, also its largest since Feb. 8. The Nasdaq Composite dropped tumbled 4.1% to 7422.05, its biggest one-day slide since June 2016.

Usually when the market tumbles so dramatically we can pinpoint a reason. Maybe bond yield’s spiking dramatically, or a new tariff was imposed, or an economic data point suggested that the Fed would have to start tightening rates. But there was no headline today, just the culmination of weakness that began when September turned to October.

As with February’s correction, a rapidly rising 10-year yield seemed to be the impetus for the initial weakness, but it was weakness that seemed limited to the Nasdaq and its highflying coteries of tech stocks like Netflix(NFLX) and If the rise in yields was caused by better-than-expected growth, as it was assumed, then buying Financials and other sectors that benefit from a stronger economy should continue to do well. But yesterday’s report from the IMF suggesting slower global growth put a crack in that story, one that had already been suggested by the outperformance of Utilities. And Fastenal’s(FAST) earnings today suggested that Industrial stocks are starting to feel the pinch from cost inflation.

That combination of higher rates, slower growth and rising costs is, how shall we say this, not good for the market. And the question now is whether the market finds a bottom soon or if we get a repeat of February’s correction.

The optimists suggest there’s no reason to fear the pullback. Merion Capital Group’s Rich Farr, for instance, highlights the strong economic backdrop, the relative strength in credit markets and the fiscal stimulus still coursing through the economy, which suggests that the market should still have upside ahead of it. If the market were to head lower, it would be for one of two reasons: Tensions between the U.S. and China get worse or the Federal Reserve raises interest rates too high. Regarding the former, Farr hopes “cooler heads will prevail.” And if the Fed hikes into slower growth, “stocks have peaked,” he explains. “But if Fed pauses, then stocks have not. Today, the odds of a Fed pause have gone up.”

Sill, it pays to remember that the last time the 10-year Treasury was near these levels–it closed at 3.221%–was in 2011, when the S&P 500 was trading at 13.1 times. Today, it was trading at about 16 times, observes MKM’s Michael Darda. To get back to those valuation levels, the market can continue falling, remain rangebound as earnings grow, bond yields could fall, or some combination of the three, he explains

Of course, there’s one other possibility: We could be witnessing the end of the bull market. I’m not ready to go there yet, but others certainly are. I spoke with Leuthold Group’s Doug Ramsey, and he contends that’s what’s happening. He cites the rapidly rising yields–rate of change matters more than level, he says–the end of central-bank bond buying, and the market’s narrow breadth as all suggesting a top. In fact, the only things that makes him think that might not be the case is the strength of the leading indicators, and the fact that the yield curve hasn’t inverted. He’d already lightened up on stocks, before today’s drop.

I bet we all wish we had.

Rising Interest Rates Start Popping Bubbles — The End Of This Expansion Is Now In Sight

Towards the end of economic expansions, interest rates usually start to rise as strong loan demand bumps up against central bank tightening.

At first the effect on the broader economy is minimal, so consumers, companies and governments don’t let a slight uptick in financing costs interfere with their borrowing and spending. But eventually rising rates begin to bite and borrowers get skittish, throwing the leverage machine into reverse and producing an equities bear market and Main Street recession.

We are there. After a year of gradual increases, interest rates are finally high enough to start popping bubbles. Consider housing and autos:

Mortgage Rates Up, Affordability Down, Housing Party Over

The past few years’ housing boom has been relatively quiet, but a boom nonetheless. Mortgage rates in the 3% – 4% range made houses widely affordable, so demand exceeded supply and prices rose, eventually surpassing 2006 bubble levels in hot markets like Denver and Seattle.

But this week mortgages hit 5% …

... and people have begun to notice. Here’s an example of the resulting media coverage:

Mortgage rates top 5 percent, signaling more home price cuts 
Some of us out there still remember when the average rate on the 30-year fixed mortgage hit 9 percent, but we are not the bulk of today’s buyers. Millennials, now in their prime homebuying years, may be in for the rude awakening that credit isn’t always cheap. 
The average rate on the 30-year fixed loan sat just below 4 percent a year ago, after dropping below 3.5 percent in 2016. It just crossed the 5 percent mark, according to Mortgage News Daily. That is the first time in 8 years, and it is poised to move higher.  
Five percent may still be historically cheap, but higher rates, combined with other challenges facing today’s housing market could cause potential buyers to pull back. 
“Five percent is definitely an emotional level inasmuch as it scares prospective buyers about how high rates may continue to go,” said Matthew Graham, chief operating officer of MND. 
Home sales have been sliding for much of this year, and total annual sales are expected to come in lower than last year. Affordability is the clear culprit. With rates now more than a full percentage point higher than a year ago, that adds at least $200 more to a monthly mortgage payment for a $300,000 loan. It also knocks some borrowers out of qualification because lenders are strict on how much debt a borrower can carry in relation to his or her income.

Some recent headlines illustrate the sudden shift in housing sentiment:

Manhattan home sales tumble in market clogged with listings
Vancouver home sales mark steady decline
For-Sale home supply surges in hot West Coast markets
Bond-market bloodbath likely to hit mortgage rates soon

Auto Sales Run Out Of Gas

 For autos, it’s the same general story, as low interest rates – in the form of 0% financing and too-good-to-be-true lease terms – produced the highest sales ever in 2016.


But lately a couple of things have happened: Everyone who could possibly qualify for a 7-year car mortgage has done so, depleting the pool of potential buyers. And interest rates have risen enough to make it uneconomic for car companies to keep offering yesterday’s crazy-low rates.

From today’s Wall Street Journal:
Zero-Percent Financing Deals Fade From the New-Car Lot as Interest Rates Rise
Car buyers on the hunt for a 0% financing deal are going to have to look harder. 
Auto lenders are pulling back on the no-interest financing offers that had become widespread in new-car ads and dealer showrooms for much of this decade. Cheap financing reinvigorated the U.S. auto industry’s sales following the recession, helping to keep monthly payments affordable and draw buyers from the used-car market, where lending rates are usually higher. 
But as interest rates rose, the cost of such deals has increased, pinching profits for car makers that finance vehicles through their lending arms and must pay the difference to keep the rate at zero for the customer. With U.S. auto industry sales slowing, car companies are turning to other types of sale incentives, such as cash rebates and discount lease rates, to lure buyers to showrooms, dealers and industry analysts say. 
“For a long time, everything was 0%,” said Adam Lee, chairman of Lee Auto Malls, a dealership chain in Maine. At first, buyers could find 0% finance deals on 48-month car loans, and then auto lenders started extending those deals to 60-month loans and eventually 72-month loans, he said. “There are fewer and fewer of those deals now,” Mr. Lee added. 
In September, the percentage of new cars financed with an interest rate of 1% or less fell to 5.3% for the month, down from 8.2% in September 2017 and 11.7% in September 2016, the year U.S. auto sales peaked, according to market research firm J.D. Power. 
No-interest loans have become even scarcer, accounting for 3.4% of all new-car financing in September, down from 9.1% two years ago, J.D. Power said. 
auto financing rates housing and autos

The average financing rate for a new-car purchase was 5.75% in the second quarter, up from 4.82% two years ago when auto sales were at their strongest, according to Experian Automotive.

auto payments housing and autos
“You’re definitely seeing the entire industry pulling back,” said Jack Hollis, general manager of Toyota North America, of the scaling back of interest-free auto loans.  
“Obviously, interest rates rising is a reality in the marketplace, and we’re going to react.”

As this post was being written, Ford announced an 11% drop in monthly sales.

To sum this up, millions of Americans who were happily signing on the dotted line because of irresistibly cheap financing are done with that kind of thing. The companies selling cars and houses to these people are now desperately trying to cut their expenses to fit their much lower year-ahead sales projections. Those companies’ suppliers are scaling back in response, and so on down the line as two major industries go from boom to bust.

Housing and autos aren’t the only ones hitting a brick wall of higher interest rates. Lots of other businesses depend on their customers’ ability and willingness to borrow. They’ll be the subject of future posts in this series.

How Tariffs Could Distort the Economy

With more tariffs threatened, it is rational for consumers and businesses to buy before price increases hit, but then comes the hangover

By Justin Lahart
West Cost ports such as Long Beach reported a big rise in incoming cargo in June ahead of tariff increases.
West Cost ports such as Long Beach reported a big rise in incoming cargo in June ahead of tariff increases. Photo: frederic j. brown/Agence France-Presse/Getty Images

When times get tough, the tough go shopping. That is the rational response to the escalating U.S.-China trade battle.

A buying spree by consumers and businesses looking to get ahead of the tariffs will add another distortion to an economy already revved up by a big stimulus and tax cut and already facing a tight jobs market and rising prices.

With President Trump’s announcement of a 10% tariff on $200 billion in goods on Monday and China’s announcement on Tuesday of retaliatory tariffs on $60 billion in U.S. goods, trade tensions between the world’s two largest economies grew. Barring a deal, U.S. tariffs will rise to 25% at the end of the year, and tariffs on an additional $267 billion Chinese goods could be announced.

Tariffs are a tax on goods, and to avoid that tax people and companies will buy before it takes effect. When tariffs were imposed on washing machines and dryers earlier this year, sales picked up before the price increases occurred and fell sharply after. When Japan raised its consumption tax to 8% from 5% in 2014, private final consumption expenditures jumped by 1.9% the quarter before it took effect and fell 4.6% the quarter after.

Companies, which are focusing more on the trade spat than consumers, will import as much as they can from China before the tariffs hit. That is what happened ahead of the washing-machine and dryer tariffs.

A similar dynamic appears to have played out ahead of Monday’s tariff announcement. West Coast ports reported a big increase in incoming cargo in June as companies filled their warehouses before the expected tariff increases. That led to a slowdown in subsequent months. Imports of Chinese furniture, which are included in the tariffs, rose 10.5% in June and July compared with a year earlier, according to the Commerce Department.

With the two sides still willing to talk, the tariffs may never take effect. Consumers and businesses could hold off spending in the expectation of a settlement.

But if they do stock up, and a strong economy gives them the wherewithal to do it, the spending could boost growth through the end of the year. Businesses will likely step up their efforts to build China-made inventory.

This could lead to a New Year’s hangover as sated consumers balk at higher prices and businesses stop ordering because their warehouses are stuffed with merchandise. Chinese tariffs on U.S. goods also could hurt. With interest rates set to go up next week and again in December, the tightening could make the impact of the spending slowdown worse. That is when the impact of the trade fight will be felt.

jueves, octubre 11, 2018


Flight Risk

by: The Heisenberg
- I found some great new color that expands on a popular piece published here over the weekend.

- This is a followup to my post on the newfound allure of USD "cash" and the effect that has on multi-asset managers' appetite for risk.

- This is especially relevant going into a week that looks set to feature the most dramatic escalation yet in the trade war between Washington and Beijing.

- At a higher level, though, it's important to understand how the rise of "cash" influences the decision calculus for stewards of capital.

With inflows drying up and possibly continuing to do so as the rates cycle between US and Europe pushes money out of the latter, liquidity will likely become more challenging.
That's from a BofAML note dated September 12 and it alludes to the same dynamic I described over the weekend in a post for this platform called "I Drink Your Milkshake".
When BofAML asked European credit investors about the outlook for liquidity, the responses betrayed more than a little consternation. In fact, "market liquidity evaporates" was the number one concern for nearly a fourth of respondents, the highest percentage in more than three years.
In European credit, the buy-side is concerned about three things: 1) the idea that between the ECB winding down asset purchases and the sell-side being reluctant to lend its balance sheet thanks to the post-crisis regulatory regime, they'll be the only bid in the market for € IG and € HY, 2) deteriorating liquidity metrics (think low turnover and an inability to transact in size), and 3) the idea that higher rates on U.S. fixed income (and especially short-dated USD fixed income) will sap demand for lower-yielding and inherently riskier European debt.

There's a lengthy and important discussion to be had around points 1 and 2 (more on that here), but in the interest of sticking with the theme from my weekend "milkshake" post, I wanted to focus again on point 3.
For those who missed it, here is the key chart which shows yields on short-dated USD fixed income sitting at their highest levels since the crisis:
Basically, that's "cash", as it were.
The allure of USD cash yielding the most since the crisis in an environment where risks are multiplying is obviously high. You'll also note from the chart that you're getting more yield there than you are from the S&P (blue line).
The cloudier the outlook gets in terms of trade frictions, geopolitical risks and domestic political tensions ahead of the midterms, the more attractive that's going to look and the higher the potential for a "flight to safety" to manifest itself in demand for USD cash. This is something I talked about at length earlier this year in a post called "Ray Dalio And The 'Pretty Stupid Cash Holders'". In that post, I cited another BofAML note in which the bank suggested that cash could be a more desirable safe haven asset than 10Y Treasurys in risk-off episodes. Recall this excerpt from a note out earlier this year:

The typical haven characteristic of Treasury debt is being hindered by the appealing rates of return on cash in the US. Historically during periods of market turbulence, money would flow from risky assets (such as stocks) into US Treasury bonds. But with $ Libor at 2.36%, support for Treasury debt is diminishing (consider that 5yr Treasury yields are 2.84%). In other words, the rise of “cash” as an asset class is altering the traditional allocation decisions of multi-asset investors in times of market stress. 
Chart 5 highlights this point. We show the rolling 1yr correlation between total returns on 10yr Treasury bonds and the total returns on stocks (daily returns). We overlay this with the evolution of 3m $LIBOR.
In other words, the rise of "cash" poses a "flight risk" (if you will), not just for emerging market assets (EEM) that are under siege from the surging dollar (UUP), and not just for European credit which looks less attractive as the price insensitive ECB bid wanes, but even for longer-dated US Treasurys (TLT), which could lose some of their appeal in risk-off environments if multi-asset investors decide they'd rather just hold USD cash equivalents.
The headlines on the trade front are bad to start the week, and unequivocally so. Over the weekend, multiple outlets confirmed Bloomberg's Friday reporting that cited four sources as saying President Trump will move ahead with tariffs on another $200 billion in Chinese goods this week. According to the Wall Street Journal (out on Saturday), Beijing may decline Steve Mnuchin's offer to hold new trade talks in light of the latest expected escalation. On Monday, an editorial in the state-controlled Global Times said Beijing is "looking forward to a beautiful counter-attack and will keep increasing the pain felt by the U.S." Hours later, Trump tweeted that countries that "will not make fair deals will be 'Tariffed!'"
Obviously, none of that bodes particularly well for risk sentiment this week and you should also note that two Fridays ago, the President suggested that should China move ahead with the promised retaliation involving differentiated duties on $60 billion in U.S. goods, the USTR is prepared to slap levies on yet another $267 billion in Chinese products, taking the total amount of goods taxed to $500 billion or, more simply, the entirety of Chinese exports to the U.S.
I don't want to suggest that some kind of acute risk-off episode is imminent for U.S. stocks (SPY).
After all, U.S. equities have proven resilient this year in the face of trade tensions, even though international equities have most assuredly not (Chinese stocks hit a four-year low on Monday, for instance).
Rather, my point is that hopes of a deescalation on the trade front look to have been definitively dashed and on balance, that's bad for risk appetite. As risk appetite wanes, the appeal of higher rates on USD cash only grows. And wouldn't you know it, Goldman is out with a brand new piece that touches on this subject.
One of the arguments against my contention that USD cash is "attractive" is that real rates are still negative. My knee-jerk reaction to that argument is this: Since when have investors in the post-crisis world cared about negative rates on safe-haven assets? But Goldman has a more nuanced take. Consider the following three visuals from their note:
See the "problem" there? For one thing, real rates aren't going to be negative for long for USD cash equivalents and if Goldman's projections are correct, not only will they be comfortably positive going forward, they will be markedly higher than median real rates in G10 and EM.
Here's Goldman (and this is truncated):
Exhibit 2 shows that this divergence in real rates has been brewing for some time, but until recently, its impact on risk assets was offset by mitigating factors. Exhibit 2 also shows just how much this divergence in rates has grown over the past few years, and how much farther we expect it to go. For much of the early post-crisis era, US policy rates (in real terms) were among the lowest in the world. It was only in 2017 that US real rates crossed the DM median. But rise they have, having already risen to the 90th percentile in DM. And according to our forecasts, the divergence in real rates will rise substantially over the next year and a half, with US rates rising relative to both DM and EM.
That is noteworthy to say the least. Don't let it be lost on you that if the U.S. economy continues to outperform global counterparts thereby forcing the Fed to remain hawkish and if the trade tensions finally do manifest themselves in higher consumer prices in the U.S. thus forcing the Fed to lean against an inflation overshoot, the gap shown in those visuals is likely to get larger.
Here's Goldman one more time:
The real rate of return available on “safe” US assets is rising, both in absolute terms and relative to non-US markets. As the rate of return on “cash” rises, the appeal of risky assets falls. The low level of real rates over most of the post-crisis period set a very low bar for risky assets. That bar is now rising, and as long as the US economy continues firing on all cylinders, the bar will continue to rise.
Again, you should think about this holistically. That is, if you want to stay ahead of the game from a big picture perspective, you need to think about the factors that influence the decision calculus of multi-asset managers and other stewards of capital.
If all you care about is where Apple (just to use a random, single-stock example) is going to trade six months from now, well then, obviously you care more about the rollout of new iPhones than you do anything mentioned above. If your investment horizon is "forever", well again, you probably don't care a whole lot about any of this other than maybe reconsidering whether it might make sense to increase your allocation to cash equivalents.
I assume most readers here fall somewhere in between on a scale where one end is labeled "I only care about my Apple shares" and the other end is labeled "my investment horizon is literally 'forever', so the only thing I care about is tweaking my allocation once every 15 years".
If you, like me, fall somewhere in the middle on that hypothetical continuum, then everything said above is pretty important from the perspective of understanding the rationale behind money potentially fleeing to a newly-attractive asset class (USD cash) that just happens to be the safest of all possible alternatives in an environment where the risks are multiplying.