Don’t bet on a soft landing
After this historic period of rising interest rates, we’ve been hearing a lot about the possibility of a soft landing. Indeed, data recently released by FactSet shows that mentions of “recession” among corporate earnings are set to fall for a fifth straight quarter.
But companies and investors alike betting on the economy slowly scaling back, without any hard bumps or slowdowns, may be in for a shock.
Despite hearing plenty about “soft landings,” the reality is there has only been one actual soft landing in the US over the past 43 years. It was the mid-1990s, when the Cold War was ending, the Federal budget was in surplus, and globalization was on the upswing.
Why we’re unlikely to see a soft landing
None of this is the case today. Regional conflicts abound; the Federal budget is in steep deficit; and globalization as a philosophy and goal has most certainly been replaced by regionalization. Based on this, there is little basis to rationally conclude that we’re in for a soft landing this time around.
CFOs who are counting on this elusive soft landing are committing the cardinal sin of ignoring their responsibility to manage financial risk, and even more so to ensure their business is able to take advantage of opportunities in a volatile market. Investments need to be safe, high-yielding, and readily available in order to withstand what history suggests could be a hard landing or recession in the coming quarters. Cash, as ever, remains king.
US businesses should be rethinking how they structure their investments and cash. Do Treasurys or government bonds make sense? Maybe, but only if they are short duration so they can be quickly and easily liquidated, and suffer limited market risk. Money market funds, meanwhile, may offer reasonable returns but they aren’t without risk, either. They can be susceptible to runs due to sudden or heavy redemptions; market risk, too, since high similarity in portfolios means that when one fund becomes unstable, contagion follows.
Why cash is the safest bet for the economic turmoil to come
Ultimately, if you’re a CFO, you should be looking at cash as a way to cushion the blow that’s on its way. This helps you to stay safe and keeps your options open, no matter what comes next. Having cash ready means you can take advantage of supplier sell-offs, acquisition opportunities, and other bargains that arise during volatile economic times.
Even better, having cash doesn’t mean what it used to: practically paying your bank to hold it for you. On the contrary, banks are increasingly working with platforms like Mayfair to offer cash at rates that are comparable to bonds and money market funds, but safer and more liquid. These platforms can also offer advanced features such as enhanced FDIC insurance, automations, and streamlined operations, which have real financial value by reducing operating costs.
It also means you are less likely to have to tighten your belt in unpleasant ways. Take Factored Quality as an example. When funding markets started to slow, the start-up intelligent quality control company needed a way to extend its runway. Putting its reserve capital into Mayfair’s cash management platform1 allowed Factored Quality to avoid standard cost-cutting options like workforce reductions. The team was already lean and the founders knew that cutting talent would only cause growth to stagnate. Mayfair's platform automatically keeps Factored Quality's operating account funded to meet monthly expense needs, meaning the company doesn’t have to lift a finger to optimize earned interest. The result is more time for a larger team to play offense and grow the business.
Let Mayfair help you land on your feet
There are those who believe we’re in for a soft landing and, yes, that might happen. But are you sure you want to bet your business on it? During times of uncertainty, consequences must dominate probabilities.
Get in touch to find out more about how cash can help you weather the storm that a hard landing can bring.