My anecdotal observation is: it's not just the banks and sophisticated investors that have already built their cash positions. imo there is an increased frequency of assertions in forums like SeekingAlpha, Motley Fool boards, substacks etc. from everyday retail investors (...like myself and my friends) holding 30+% in cash and cash equivalents, and "saving their dry powder" for a crash we all anticipate will occur soon.
The challenge that markets present to an individual Investor is that the collective wisdom of a market is always a step ahead of most of the market participants, at least in the short term. In other words, if we all think a crash is coming soon, then by definition/platitude it's almost certain that the market has already priced in that risk.
My assessment is that for those holding large cash positions, the actual biggest risk is NOT that the market unexpectedly takes off, and is NOT that the market crashes. The biggest risk is the market flatlines, (...potentially for years), causing opportunity cost from the time spent "treading water".
Good points. I take some solace that I'm earning 4+% on the cash. I use Vanguard's VUSXX for my IRA but they also have good money market options in both TIPS and Munis.
Agree, that’s always a risk. I’ve been doing this a long time and only know a few things. 1. You have to be in the market long term. 2. We know that credit market failure do happen every several years. 3. None of us know just when they will happen. 4. But when it doesn’t can buy great companies for half price. My strategy is to leave most of my assets invested all of the time in a small set of companies that I think of as the greatest companies in the world. We all know who they are already. And I keep a chunk of my money in cash to buy more of them if/when they go on sale. That chunk varies from 0% (just after a big crash like 2010) to 30-40% when things feel like they have been too good for too long and the banks are no longer lending, like today. But I totally agree that not being invested at all is a very expensive long term strategy.
I have been wondering how much the rise in private and collateralized credit will help avoid a major credit crisis. Banks are lenders of first resort. It seems to me that a spike in short term floating rates is what will cause an economic and possibly financial crisis, however that might come about. If neither small business nor private equity can afford private credit, watch out!
You raise a good point Pat. There has been a huge growth in private credit in recent years. That’s a very good thing for the economy. Private credit is more expensive but also more flexible than bank lending, can finance more complicated businesses, and better able to adapt to sudden changes in the market.
Thanks Dr. John. New subscriber here. I’m meeting with one of my financial advisors in about an hour for our regular quarterly meeting. I was planning on telling him to move much more of my portfolio there over to precious metals and perhaps into T-bills. I’m a little skeptical of t-bills right now though, because of something I read the other day about what happens to t-bills if the U.S. is no longer willing to pay its debt - something that the article I read the other day predicted was coming.
We are flying through some turbulent air currently. Tightening seatbelts - while certainly advisable - does not help as much when the plane is intentionally being flown into the ground by the people at the controls. I’m not certain that’s what’s happening to our economy, but given some of the cockpit warning lights and sirens I’m hearing from back here in my seat, it certainly seems possible. Thanks for your writing. I’ve got a lot of catching up to do!
While I wouldn’t rule out anything these clowns might try to do, there is absolutely no problem in servicing the national debt, which represents only 6% of total assets in the US and just 18% of out net worth.
The scare mongers are everywhere these days. They should be ashamed.
Hi Jessica, sorry about not responding sooner. I missed your query until just now. Here is the article link. I’m not familiar with this gentleman or his credentials, and as Dr Rutledge said in his reply to me, a lot of people are working hard to scare others. But MALA is being reported on elsewhere.
I hear you on both the plane and the level of risk and uncertainty. The one thing I can tell you for certain is that I have about 30% of my assets in T-bills today. Short-term T-bills are the most secure asset you can own, their price won't fluctuate, they pay about 4.5% at the moment, and there can be no default. A lot of people are working hard to scare people. There is plenty to worry about, for sure, but T-bills is not one of them.
PS: You can hold the T-bills directly in a brokerage account if you want but it is much easier, and just as safe, to own a solid money market fund that only holds T-bills. I use the Vanguard fund VUSXX. They charge very little to manage it and you can get your cash back in 1 day.
Interesting thanks John. It seems we are on the same page. I'm watching the Policy Uncertainty Project daily uncertainty index closely. A burst of uncergainty isn't necessarily harmful for asset markets, but sustained uncertainty is associated with a rise in precautionary savings, slower employment growth, weaker investment, a correction in stocks, and a blow out in credit spreads. We've started seeing all of this, save the credit spreads. I'm guessing that's coming too...
This could all die down if the President stopped his stupid tariff war, reined-in his revenge rhetoric etc...but that seems unlikely.
With the S&P500 EPS expectations set for a boom and valuations still stretched, it's hard to see stocks performing. Personally, I'm long precious metals, T-Bills/cash and June puts on the S&P that I bought during the euphoria a couple of months ago.
My anecdotal observation is: it's not just the banks and sophisticated investors that have already built their cash positions. imo there is an increased frequency of assertions in forums like SeekingAlpha, Motley Fool boards, substacks etc. from everyday retail investors (...like myself and my friends) holding 30+% in cash and cash equivalents, and "saving their dry powder" for a crash we all anticipate will occur soon.
The challenge that markets present to an individual Investor is that the collective wisdom of a market is always a step ahead of most of the market participants, at least in the short term. In other words, if we all think a crash is coming soon, then by definition/platitude it's almost certain that the market has already priced in that risk.
My assessment is that for those holding large cash positions, the actual biggest risk is NOT that the market unexpectedly takes off, and is NOT that the market crashes. The biggest risk is the market flatlines, (...potentially for years), causing opportunity cost from the time spent "treading water".
Good points. I take some solace that I'm earning 4+% on the cash. I use Vanguard's VUSXX for my IRA but they also have good money market options in both TIPS and Munis.
Thanks for your thoughts.
Agree, that’s always a risk. I’ve been doing this a long time and only know a few things. 1. You have to be in the market long term. 2. We know that credit market failure do happen every several years. 3. None of us know just when they will happen. 4. But when it doesn’t can buy great companies for half price. My strategy is to leave most of my assets invested all of the time in a small set of companies that I think of as the greatest companies in the world. We all know who they are already. And I keep a chunk of my money in cash to buy more of them if/when they go on sale. That chunk varies from 0% (just after a big crash like 2010) to 30-40% when things feel like they have been too good for too long and the banks are no longer lending, like today. But I totally agree that not being invested at all is a very expensive long term strategy.
Thanks for writing.
Dr. John
I have been wondering how much the rise in private and collateralized credit will help avoid a major credit crisis. Banks are lenders of first resort. It seems to me that a spike in short term floating rates is what will cause an economic and possibly financial crisis, however that might come about. If neither small business nor private equity can afford private credit, watch out!
You raise a good point Pat. There has been a huge growth in private credit in recent years. That’s a very good thing for the economy. Private credit is more expensive but also more flexible than bank lending, can finance more complicated businesses, and better able to adapt to sudden changes in the market.
There are opportunities and significant risks in the stock market and cryptocurrency market right now, can you give me some advice?
Thanks Dr. John. New subscriber here. I’m meeting with one of my financial advisors in about an hour for our regular quarterly meeting. I was planning on telling him to move much more of my portfolio there over to precious metals and perhaps into T-bills. I’m a little skeptical of t-bills right now though, because of something I read the other day about what happens to t-bills if the U.S. is no longer willing to pay its debt - something that the article I read the other day predicted was coming.
We are flying through some turbulent air currently. Tightening seatbelts - while certainly advisable - does not help as much when the plane is intentionally being flown into the ground by the people at the controls. I’m not certain that’s what’s happening to our economy, but given some of the cockpit warning lights and sirens I’m hearing from back here in my seat, it certainly seems possible. Thanks for your writing. I’ve got a lot of catching up to do!
Is this true? The U.S. is not willing to pay off the national debt, is there a link for me?
While I wouldn’t rule out anything these clowns might try to do, there is absolutely no problem in servicing the national debt, which represents only 6% of total assets in the US and just 18% of out net worth.
The scare mongers are everywhere these days. They should be ashamed.
Hi Jessica, sorry about not responding sooner. I missed your query until just now. Here is the article link. I’m not familiar with this gentleman or his credentials, and as Dr Rutledge said in his reply to me, a lot of people are working hard to scare others. But MALA is being reported on elsewhere.
https://open.substack.com/pub/umairhaque/p/the-mar-a-lago-accord-or-the-plan?r=27ahn3&utm_medium=ios
Thanks for sharing and I hope your day is going well
Ted,
I hear you on both the plane and the level of risk and uncertainty. The one thing I can tell you for certain is that I have about 30% of my assets in T-bills today. Short-term T-bills are the most secure asset you can own, their price won't fluctuate, they pay about 4.5% at the moment, and there can be no default. A lot of people are working hard to scare people. There is plenty to worry about, for sure, but T-bills is not one of them.
PS: You can hold the T-bills directly in a brokerage account if you want but it is much easier, and just as safe, to own a solid money market fund that only holds T-bills. I use the Vanguard fund VUSXX. They charge very little to manage it and you can get your cash back in 1 day.
Hope this helps.
John
My favourite asset classes at times like this are cash and canned goods.
Harry, a sound strategy for times like these!
Interesting thanks John. It seems we are on the same page. I'm watching the Policy Uncertainty Project daily uncertainty index closely. A burst of uncergainty isn't necessarily harmful for asset markets, but sustained uncertainty is associated with a rise in precautionary savings, slower employment growth, weaker investment, a correction in stocks, and a blow out in credit spreads. We've started seeing all of this, save the credit spreads. I'm guessing that's coming too...
This could all die down if the President stopped his stupid tariff war, reined-in his revenge rhetoric etc...but that seems unlikely.
With the S&P500 EPS expectations set for a boom and valuations still stretched, it's hard to see stocks performing. Personally, I'm long precious metals, T-Bills/cash and June puts on the S&P that I bought during the euphoria a couple of months ago.
Thanks Peter. We are reading the same tea leaves.
John
thanks, john. very well done. the sidelines are a comforting place to read thoughtful analysese these days. great recomnedations. best, swk