A Good Year to be in Cash
October 06, 2015
Cash may still outperform all else . . .
Interesting data was released this week. "Cash" is on track right now to outperform both stocks and bonds for this year -- something that has not happened since 1990. According to Bank of America and Merrill Lynch, it may all come down to the idea that central banks (with their free-flowing liquidity) have peaked. Markets continue to turn downward. According to analysts led by Michael Hartnett, annualized returns are negative by about 6 percent for the global stocks and negative about 2.9 percent for global government bonds. The dollar is up 6 percent so far this year. Commodities are down 17 percent, while cash is flat.
Many of you are 100 percent in cash -- even though my recommendation has been for somewhere between 60 percent and 75 percent. If you figure the 6 percent increase in the dollar, your purchasing power (if you are in cash
) has increased by about 4 percent, factoring in 2 percent for inflation (not likely true dollar for dollar). It looks as though has been a good year to be in cash.
Moving to cash is still not a bad idea -- although you are not going to do as well as those folks who have been in cash since the beginning of August. However, the markets show there is still negative momentum. We continue to see sentiment about the market lowering; some have lowered their year-end target for the S&P to be a negative 1.5 percent.
Of course, everyone is waiting to see if oil continues to hit new lows this year. I am in the camp that it will not. When you see pumping at record levels, inventories close to 100 million barrels above the five year average and prices holding relatively steady during the month of September, the bottom is likely close. When all the bad news that has pummeled the sector continues to be bad and the price is not declining I believe that a bottom is near. I do think it will hover somewhere around the current range.
It looks as though we may be looking at legislation that would allow exporting of crude oil. If nothing else, this would keep oil prices stabilized. In fact, we could see oil prices begin to go up. Certainly this would be good for oil stocks. I do not believe that exporting crude would be good for the American economy in the long run, but it may be good for some of those oil stocks we have been patiently waiting to see return to positive territory.
I recommend you stand pat for now if you have only 20-25 percent invested in the markets and the rest in cash. Our first buy into the bottom could be oil but a little more data is in order.
Keep the cash position. Since it looks as if it may outperform any other asset class this year but watch for my alert.