Chuck Jaffe writes a “Stupid Investment of the Week” column for Marketwatch. This week it is cash. We’ve been talking about the problem of holding cash on our periodic conference calls for some time.
We are at a funny spot in the economic and market cycle. Depending on which economic forecaster you listen to, the economy is either at the bottom, beginning to recover, or in the eye of the storm before another drop. Depending on the market action that day, investors are either fearful of further declines or of missing the rally. Investors tried to diversify and stick it out in 2008, and, for the most part, that didn’t work for them. Almost everything went down. Now retail investors don’t know what to do.
They do recognize that the current market environment is something that no one has seen before. They seem to recognize that globalization has occurred and their investment policy now needs to address multiple scenarios with risks of inflation, deflation, a weak dollar, and so on. And they do know, with today’s low yields, that sitting in cash will not get them to their investment goals.
It has occurred to most investors that it might be wise to consider a tactical approach that offers wide flexibility and exposure to different asset classes, but they don’t have any idea how to go about it. I think this is the primary reason why clients have been so interested in our Systematic RS Global Macro portfolio. It uses relative strength to handle the timing and exposure to equities, fixed income, inverse funds, commodities, currencies, and real estate-and then continues to systematically adjust those positions in response to changing market conditions. The attraction of such an approach may be particularly strong now due to the low yields on cash.
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