Tuesday, September 20, 2011

Cash is king if you know how to use it!

After having a two week holiday all around the Nordic countries, I had the time and pleasure to enjoy many of the fruitful conversations with my beloved aunt, she knows my purpose, One Million Euros in less than five years...the Holliday was awesome, in fact I haven't been able to sit and recapitulate until now I have been busy with the pleassures of life.

During all this time I was totally surprised that Hill Harper a New York Times Bestselling author, with titles including The Conversation, Letters to a Young Sister, and Letters to a Young Brother, has contacted me. Hill is a graduate of Harvard and Brown Universities, and when he's not writing, he stars on CSI: NY. Hill has contacted me to write a review of his newest book The Wealth Cure which looks at wealth as a reward of a gratifying life full of rich experiences, instead of in the monetary sense of it. While he does share ways to create financial stability, he reflects upon the idea that there is much more to personal wealth than money. The Wealth Cure came out August 23, 2011and it's going to be my pleasure to review his book in my blog soon.

Also Thomas Herold, Wealth Educator and Financial Author has contacted for the same purpose a review on his new book Building Wealth with Silver His new book reveals the most crucial facts on what’s happening with the world economy. How we got into this mess and what’s likely to happen in the coming years. It’s an essential guide that helps people protect their money from inflation. It also gives profound insider tips on how to make a fortune by investing in silver now.

But on the Stock Market arena I have to say it straight forward, right now it is advisable to cash out immediately I know I shouldn't be saying this because I love the game but I just did, I sold almost all my positions in the Stock Market because I just got the idea that we as humans we respond to all the social interactions of the external influences meaning that now summer is gone and difficult times are approaching but we have to remember the fact that when there are losers there are also winners so better be on the right side of the spectrum.

Investors seem finally to be taking the full measure of the panoply of risks and the exceptional uncertainty they face. What are their options in the current context?

Gold, perhaps the oldest refuge of nervous money, has attracted enormous interest from investors who have been rattled by the financial crisis. As of Thursday, gold’s annualized real return over the past five years is a stunning 18.3%. That rise has pushed gold into bubble territory, diminishing its claim to safe haven status; putting money into a bubble is hardly a prescription for capital preservation.

The yellow metal is even overpriced against our second candidate, the Swiss franc—despite the fact that the franc itself also looks overheated, as Buttonwood remarked last month. The Swiss National Bank, which is not prone to hyperbole, called its currency “massively overvalued” and promptly cut the target range for its key policy rate to 0.00-0.25%. The franc has appreciated by close to 40% against the euro since January 2010.

Finally, Treasuries are a reflexive choice in a crisis. Sure enough, the 10-year yield fell by roughly 20 basis points (yield is inversely related to bond prices), but locking in a 2.40% nominal yield is more akin to surrender than a genuine defensive strategy. Naturally, you can sell the bonds before they mature i just did, but that leaves you exposed to price risk.

In the flight to safety, however, investors are overlooking one asset class: Cash. Not all investors, mind you. The Quantum Endowment Fund—George Soros’s vehicle—is reportedly 75% in cash. At FPA Capital, Robert Rodriguez, a respected value investor and one of the few people to anticipate the credit crisis, has over 30% of his flagship fund in cash. And in an interview published on July 23rd, the head of PIMCO, Mohamed El-Erian told Barron’s:

And don't underestimate the value of cash; in a volatile world both good and bad assets are impacted, and the higher the probability of being able to buy good assets at really cheap levels. You don't want to be fully invested today.

In my own Multi-Asset Fund, JC'S holdings which I manage and control, I have 60% cash, which is very significant planning to make an agreemen on diversifying some of the Investments.

As Mr El-Erian suggests, cash has a characteristic that is often overlooked: its optional. Having cash on hand in a volatile market gives you the flexibility to purchase assets in the future at discounted prices. And that is exactly my next strategy purchase assets at discounted prices, It’s a mistake to feel compelled to be fully invested in an environment in which there are few attractive opportunities. Or as hedge-fund manager Seth Klarman puts it: "Why should the immediate opportunity set be the only one considered, when tomorrows may well be considerably more fertile than todays?" During periods of significant dislocation, when other investors are forced to liquidate positions, cash’s embedded option becomes particularly valuable.

The best measures of long-term value—the q ratio and the cyclically-adjusted price-to-earnings ratio—both suggest stocks are overvalued, even after the recent price declines. What if those discounted prices never materialise? It’s true that markets can remain expensive for long periods before value re-asserts itself, but the numerous risks in today’s environment are potential catalysts for that process to occur. When it does, prices typically overshoot on the downside along the way, at which point buying opportunities will come.

Keep writing me, keep thinking, and keep winning!