It’s bad enough that the daily “cheerleaders” financial news (yes, that’s the right term) the stock market higher pointing to all kinds of fundamental and technical metrics, but conveniently omits the elephant in the room. : the main reason for one of the longest and most dramatic bull markets in history!
Now, on this late date, some very savvy and successful investors have come up with bold, if not wacky advice that investors can feel stupid if they hold cash because the markets will inexorably go up. This advice sparked feelings of shock, disappointment, worry, and even anger for many of us. Suddenly, the prevalent view (for months or even years) that “there is more risk on the downside than on the upside” was reversed for these observers.
What are the possible reasons for this about-face in the markets by some?
They really believe what they say! It is shocking, if not frightening, that such astute observers, against the background of conflicting evidence, conclude that the market has more upside potential than downside risk, especially given the leverage of the global economy and the overvaluation of the stock market by most measures. Let’s not forget that this is the second longest bull market in history, just behind a bull market that occurred at the dawn of the Internet age, arguably the most transformative technology in the world. last century!
They have been informed by the “powers that be” (you know who you are, although we never will) that the “fix is here” and that nothing will be allowed to tank the market for the foreseeable future (whatever. either the duration). This can irritate many of us, because without knowing the details of these insurances (if they exist), we are unable to commit significant capital and invest with confidence.
The “powers that be” have told them that the only way to avoid a market collapse is to collect so much stupid money (that’s us!) To support the markets. It is both annoying and disturbing for obvious reasons.
They are as oblivious as the rest of us to our financial future, but realize that their business models (read: hedge funds) are not only based on large amounts of borrowed money (which the government has provided at rates historically low) but on the leverage offered by the stupid money of the co-ops which allows them to jack up prices and sell us to record levels, leaving us to “hold the bag” when the market is in full swing. Make no mistake, this is a high stakes musical chair game that will end with us standing when the music stops, that is, when “they” (whoever they are) decide that “the party is over”. Without notice and quickly, the sale will start in earnest and they will be off the market long before we know what hit us! It is not only disappointing, but rather disturbing and annoying!
Investors should not be reassured in any of these scenarios. By the way, it is not clear who can benefit from such wise advice if the advice is to the contrary. The very rich who are rightly more concerned with preserving capital than risking it for higher returns are not likely to subscribe to this strategy. Retired baby boomers who barely have enough savings to live on and who really can’t afford to risk losing their spade eggs at this late stage in life certainly can’t sign such foolishness. And millennials struggling to make a living and struggling with high student loans and consumer debt are not candidates for such risks either. It would appear that only investors who wish to enter and exit the market at opportune times (i.e. traders) are potentially in a position to take advantage of this advice.
Proponents of the “No Cash” strategy claim that history suggests that a long-standing merger is in the cards, but these are the same people who told us that the historic measures no longer apply and that a “new normal” prevents reliance on old metrics to make predictions. So what is it that makes them so sure that the market continues to “melt”? The question for investors is, will you feel dumber to be in cash when the market is rising or dumber to be fully invested when the market is contracting? For many who still remember the 2008 crash vividly, the lesser of two evils is obvious.