When people say Warren Buffett is holding cash, what does that actually mean? He obviously doesn't have briefcases in his basement. So what does "cash" mean on that scale?
It's probably in money market instruments, which are short-term, very-low-risk securities issued by governments and corporations to meet their day-to-day funding needs. It could be Treasury bills or commercial paper.
And this is one of the things about trying to hunker down in "safe" investments. If you really think things are going to go that badly, where is your money really safe?
Either our federal and financial systems will weather this storm, and eventually recover, or else they may fail catastrophically, at which point even T-bills might not be worth the paper they're (theoretically) printed on. In the former scenario, the usual arguments against market-timing apply; in the latter, nowhere is necessarily "safe", so I don't see a point in up-ending your whole portfolio chasing the illusion of safety in a particular asset class.
The only thing I think might be prudent is diversification, to hedge against unexpected losses in one or more sectors. But that's prudent in "normal" circumstances as well.
Scenario analysis involves thinking of possible macro outcomes as a spectrum, not a binary. For example:
Best 1......20 Worst
1. A deal is made removing most tariffs after just 3 months, a modest tax bill is passed, inflation stays under control, and the Fed starts making rate cuts. 300k government employees lose their jobs but are quickly absorbed by the private sector. Immigrant deportations are no more effective than they were in the past. Core PCE hits 2% at the end of 2025, with annual GDP and wage growth near 3%. Stocks zoom upward as corporate profits and margins grow, amid less competition from startups who sat out the risk.
5. Tariffs on either Canada or Mexico are mitigated, but not eliminated. A tax bill expands the deficit, but bond markets mostly swallow the bill. Rates stay steady all year. 500k government employees lose their jobs. The immigrant population is reduced by deportations, causing some local labor shortages and raising costs for construction, hospitality, restaurants, agriculture, and meat processing.
10. Currently announced tariffs stay permanent and are expanded to include most worldwide markets. A massive tax bill is passed, and bond markets seize up like they did for Liz Truss, as the flow of dollars from exporters into the treasury market is disrupted at the same time as the US deficit picture explodes. 10 year treasury yields hit 7.5%, mortgages hit 10%, and job losses start to mount. Trump reverses the tariffs as his approval rating hits 35% and announces stimulus checks.
20. Tariffs and a sudden slowdown in consumption disrupt global financial flows, causing a bond seizure and the failure of financial institutions that had bet heavily on currencies, derivatives, or swaps. 12% mortgages cause the housing market to collapse, dragging down more financial institutions and causing an acute liquidity crisis. Trump's new Federal Reserve chair, a 23 year old conservative vlogger, cuts the FFR to zero, while his 3rd treasury secretary, a political donor, prints dollars to keep the government afloat. As unemployment passes 20% and inflation passes 10%, Trump's approval rating holds at 50%, because, as in 2024, people believe what their phones say rather than their own eyes and wallets. Democrats remain politically inept, wringing their hands on the internet about the injustice of it all, but not organizing. As the next Great Depression begins, the ruling party uses the chaos to solidify power, and in the 2028 elections, Elon Musk allegedly wins 90% of the vote as the Supreme Court - with 2 new Trump nominees - declines to look into the constitutional legality of Congress's resolution that Musk was born in the U.S. Musk's vice president, a 19 year old Instagram influencer named Dwayne Camacho, becomes the first political leader to fire a gun into the ceiling of the US Senate chambers during a speech, causing a round of laughter from Republican lawmakers as Democrats flee. Meanwhile, yachts full of valuables and guns chug out of Miami harbor every night, bound for Mexico and Caribbean islands.
