So Many Billionaires Can’t Be Wrong, Can They?

So Many Billionaires Can’t Be Wrong, Can They?

By Nestmann Intelligence Unit • October 28, 2016

The world’s billionaires are hoarding cash.

Why, you ask?

The short answer is market volatility. And billionaires know the best time to prepare is when the odds are in your favor.

As I write this, we’re in the final days before the votes are counted in the most tense election in recent memory. One look at the headlines or nightly news and you’ll see political heat has reached a fevered pitch. Most polls show Clinton in the lead in key battleground states.

But let’s not forget we are also barely four months removed from Great Britain’s vote to leave the European Union. The “experts” predicted the UK would decide to stay. But they were wrong, and the outcome is now seen as pushback against modern globalization and, dare I say, the “new world order.”

Marry these factors in your mind’s eye to the simmering residual memory of 2008’s global financial crisis. Include the rising tide of anger among “equality” activists, and add the increased aggression in IRS tactics and global government austerity cash grabs worldwide. Taking all these things into consideration, you can see why the super-rich might choose to keep record portions of their wealth liquid and within arm’s reach.

Now, to be clear, the outlook is not all doom and gloom. Many investors remain confident. Yet, high levels of geo-political conflict have driven the wealthiest to once again view cash as king.

Bob McCann is the chair of Swiss bank UBS’s Americas division. In an interview with Reuters, he said the effects of the US election at such an unstable economic time are unpredictable, and while the stock market continues to hit all-time highs, many investors have adopted a wait-and-see attitude.

“Historically, individual investors define risk as, ‘How much volatility can I live with in my portfolio?’” McCann said. “The definition has changed to, ‘How much money can I afford to lose permanently?’”

Even the mention of the possible radical changes proposed by both candidates has had an effect.

Donald Trump has vowed to break up financial reform laws, renegotiate the North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico, and begin taxing Chinese and Mexican imports. This has serious implications for the market we are all subject to.

And Hillary’s campaign has focused on corporate tax hikes and aggressive pursuit of governmental regulation. The tone has many investors on edge.

The election has opened a fault line, and the fissures of turmoil spread wide. Predictably, the world’s 1,810 billionaires are watching for a downturn, as global financial gravity appears to be pulling on the markets.

Since 2008, billionaires have seen their wealth and their ranks grow. 2015 set records for new billionaires as they saw the sum value of their wealth grow to $7.7 trillion, a number that is larger than the wealth of any nation except the US and China.

Asia led the increase, adding 15% more billionaires to their club. Europe still has the most billionaires of any region, followed by North America.

As wealth grows at the top, the only real gauge of the economy is to look at what the elites are doing. As the old adage goes, there are no accidental billionaires. For us regular folk, it’s wise to look to the top for our cues. In this case, the numbers tell the story.

According to a recent report by Wealth-X, billionaires currently hold a combined US$1.7 trillion in cash. That’s the highest rate since the firm began to keep records in 2010. For scale, that figure is around the same amount as the GDP of Brazil.

According to the report, billionaires have chosen to hold cash because they see a rise in volatility in world markets and have decided to stay a bit on the sidelines until the waters steady.

“Billionaires are taking money off the table where available, while uncertainties in the economy and the historical highs found in deals have resulted in cash-flush portfolios,” the report read.

Wealth-X’s findings are echoed in surveys completed by other market watchdogs. UBS reports the richest Americans have chosen to hold an average of 25% of their wealth in cash even when they are confident about the economy. This is 5% more than individual investors and an increase since 2009, after Lehman Brothers failed and the resulting global economic crisis crushed the future dreams of legions of savers while forcing investors to peer over a cliff toward oblivion.

All the data now show the super-rich have chosen to reduce their exposure to such trauma.

It’s important to note that this trend could change. The Wealth-X report states billionaires may simply be waiting for prices to fall to a more enticing level.

“Once equity valuations return to more attractive levels, we expect a movement toward putting liquidity back into deals,” the report reads.

However, for prices to once again stabilize, there has to be a correction to wipe the slate clean. When the actions of the mass of the world’s most successful people decide to exercise caution, it’s best to take heed.

According to a survey of Merrill Lynch advisors, 61% of all investors think the economy is in a “late-cycle phase, which is typically emblematic of an economy set to slip into a prolonged downturn.” In other words, the markets are up now, but they won’t be forever. So now is the perfect time to ready yourself for the storm.

The reality of a stockpile of cash in your house is probably impractical. Billionaires have the advantage of secure storage space that we normal people probably don’t. Yet, we can still prepare.

The classic option is to secure your wealth in sturdy assets that retain value and possibly even grow in volatile times. Buying gold and precious metals is the standard. It’s tested and true. Gold is a surefire way to be certain you’ll be covered when volatility hits.

As for cash on hand, here at the Nestmann Group, we can show you where to store cash to keep it safe for when the time comes to buy other assets again.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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