The Biggest Cash Hoard in Canada’s History

Despite Canada’s economic doldrums, Canadians still have plenty of cash. They’re just not willing to put it to work.

According to economists with CIBC, Canadians are sitting on an extra C$75 billion in cash above and beyond what they would be holding under normal circumstances. CIBC estimates that amount is equivalent to the total value of Canada’s overall personal liquid assets.  

And cash is piling up at the highest rate in four years, with idle money having risen 11% year over year.

However, Canadian consumers aren’t alone in this trend. The country’s private non-financial corporations reportedly had nearly C$700 billion in cash collecting on their balance sheets as recently as the first quarter of last year.

The two most recent heads of the Bank of Canada (BoC) have both bemoaned companies’ caution in this regard, with former central bank chief Mark Carney referring to the corporate cash hoard as “dead money,” while current BoC Governor Stephen Poloz has lamented executives’ lack of “animal spirits.”

But whether we’re talking about consumers or corporations, both feel compelled to stockpile cash for the same reason: uncertainty.

It’s perfectly understandable why retail investors would prefer to build cash rather than invest. After all, the market has battered their portfolios three times over the past 16 years.

In fact, the Global Financial Crisis seems to have significantly rewired the investor psyche: CIBC found that excess cash savings have grown far more substantially since 2008 than they did following other downturns over the past 25 years. So the latest additions to the cash hoard come on top of an already-elevated level of cash.

Meanwhile, much of the corporate cash hoard was attributed to companies that operate in the resource space. An International Monetary Fund analysis found that such savings were due in part to executives’ efforts to prepare their firms for the inevitable downswing of the energy sector’s boom-and-bust cycle.

While savings help create a buffer against bad situations turning even worse, such as what’s recently befallen the resource space, they also can create a self-fulfilling cycle, where money that has the power to turn around a market or an economy continues to pile up in an unproductive manner.

Economists and market watchers alike keep close tabs on these cash hoards because they’re a useful barometer of investor and business sentiment.

On the investing front, rising cash can be a contrarian indicator, since investors increasingly move to the sidelines as the market approaches a bottom. And they typically remain on the sidelines long after the market has finished bottoming, only to meaningfully shift back into the market as it’s approaching new highs.

And on the economic front, cash positions can reveal whether companies are investing for new growth or retrenching. That has important implications for monetary policy and, therefore, the overall economy.

Regardless, the thing that underpins both modes of analysis is hope–the hope that eventually all that cash will be deployed, thus kicking off the next bull market or the next turn in the business cycle.