One thing that is not changing as time goes by is that when there is a loss of confidence, Cash Is King.
I write this with all due respect to Ray Dalio who is a brilliant investor. However, his interview a couple months ago where he disputed this fact about cash looks very poor in hindsight. Unfortunately for his investors, I am sure his fund is getting slaughtered right now.
The global marketplace is a gloried lesson in the flow of money. That is what makes traders so adept at picking out macro trends. It is also something that politicians and many business leaders miss. What rotation is vital to understanding markets, either domestic or global.
In the United States stock market, we see the importance of being able to identify sector rotation. This is often the cause of returns that are achieved. In flat markets, money does not stop. It might not push things higher, just certain segments.
What we witnessed over the past few weeks show what investors and traders are thinking. On down days in the stock market, it is common to see gold, Bitcoin, and oil all down. This means the money flow is out of the market.
In times of historic uncertainty, Cash is still King.
On the bright side, those who are tasked with getting a return, cash is not a viable option for long. Cash provides a lousy return especially with interest rates as they are. However, for all the talk of gold being a hedge, cash truly serves that purpose.
There will be a point when the values look to appealing to the money managers. When that happens, the flow of money will be reversed. The pace of this return will signal when the recovery will be V or L shaped. It is important to note that V-shaped recoveries tend to be rather rare.
Of course, there is nothing common about what is taking place right now so who knows.
In my view, what is taking place now, from a policy and, thus, economic perspective, is absurd. I grant that there is reason for concern but to nuke the entire economy is foolish. The toughest part in all this, from a investing standpoint is the fact it is going to take a couple quarters to unwind everything and figure out what the damage truly is. I have a feeling this is what we will be doing throughout the Summer.
Another important thing to note is markets recover long before economies. Thus, those who are not in/going to be in the market, are going to suffer longer than market participants.
However long this takes, it is going to be a grand buying opportunity at some point. Those who raised cash throughout this stand to benefit more than others. A lot of market actors are riding this all the way down.
This is not financial advice.
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Posted via Steemleo