- MemberMay 17, 2020 at 7:58 pm
Hi Justin (+ others)
If any of you are mosly cash right now, can you share your leading indicator that compels you to a cash position? I’m about 30/70 right now (30% cash) so I feel a little nervous, but I hear arguments on the bullish side all the time (COVID fading, economy recovering, Q2 disaster priced in, Fed stimulus, etc). I would be curious to hear thoughts. Thanks!
- MemberMay 17, 2020 at 9:05 pm
I am in the same boat, about 20% cash. But ever since I saw that Warren Buffet didn’t even buy a single stock in The 13F report that came out last week, my nervousness grew a bit.
- MemberMay 18, 2020 at 11:23 am
This is a very broad-based question with many possibles lines of reasoning… I would be happy to offer my key reason for maintaining a very conservative equity positioning right now.
2020 post-COVID could be labeled in two substantial phases thus far in my opinion and we will be entering a third in the coming months. Phase 1) The absence of liquidity following a sharp selloff accelerated by systematic strategies / highly leveraged funds (market down 30% in a few weeks). Phase 2) The fed stepped in and opened up liquidity to the market at the fastest rate in history and the market rapidly started to rebound as money was freed up from risk-free assets (treasuries) to higher risk assets (corp. debt / high-quality equities). As a result, we saw a record divergence in equity allocation within the S&P 500 between top companies/bottom companies + soaring credit spreads. We also saw a rapid rebound in the corporate debt market despite default risk growing by the day. Now we are approaching phase 3 and this is what scares me. Phase 3) Despite no indication of full economic recovery until 2021, unemployment levels only rivaled by the Great Depression, and heightened trade tensions between U.S. & China the S&P is only down ~12% since the beginning of this crisis. This is where fundamentals are really separated from asset price valuations, but I believe it’s for good reason based largely on the immense capital flows introduced by the Fed and spending by the government.
The fragility of the current asset price valuations is what gives me reason for concern. A liquidity outflow of higher-risk assets into lower-risk assets (treasuries) would cause a large shift back in multiple valuation amongst investors. This liquidity shift is very possible post-September when treasury issuance by the government begins to break out of the QE demand allotted.
Based on the precarious capital foundation the market is resting on today, I am relatively bearish on equities at today’s levels. Current portfolio allocation: 40% equities, 20% high grade debt, 20% gold, 10% BTC, 10% tail risk / long vol.
- MemberJuly 7, 2020 at 10:13 am
Hi Michael, was wondering if you personally revisited your stand from from an investment allocation standpoint? I’ve been ‘risk-off’ for some time now and sitting on 60% cash and patiently waiting for a market ‘pull-back’ but it appears it will not happen. Also, I could not, for the life of me, build up on equity investments positions as the market is so high right now and could potentially get higher, ie AMAZON, TESLA, APPL, MICROSOFT..
Log in to reply.