Stupid-To-Be-In-Cash Is Stupid Stock Market Advice

It’s bad enough that the daily financial news “cheerleads” (yes, that’s the right term) the stock market higher pointing to all sorts of fundamental and technical metrics but conveniently omits the elephant in the room: CONTINUING AND UNPRECEDENTED GLOBAL CENTRAL BANK MONEY PRINTING is the major reason for one of the longest and most dramatic bull markets in history!

Now, at this late date, some very savvy and successful investors have come forth with the audacious if not outlandish advice that investors may feel stupid if they hold cash, because markets will inexorably move higher. That advice evoked feelings of shock, disappointment, worry and even anger for many of us. All of a sudden, the prevalent view (for months if not years) that “there’s more risk to the downside, than the upside” was reversed for those observers.

What are possible motives for this about-face on the markets by some?
1. They actually believe what they say! It’s shocking if not frightening that such savvy observers, against a backdrop of contradictory evidence, should conclude that the market has more upside potential than downside risk, especially given how debt-burdened the global economy and how overvalued the stock market is by most measures. Let’s not forget this is the second longest bull market in history, second only to a bull market that occurred at the dawn of the internet age, arguably the most transformational technology of the last century!
2. They have been advised by the “powers that be” (you know who you are, even though we never will) that the “fix is in” and that nothing will be allowed to tank the market in the foreseeable future (however long that is). That may anger many of us because without knowing the details about those assurances (if they exist) we are unable to commit meaningful capital and invest confidently.
3. They have been advised by the “powers that be” that the only way to prevent a market collapse is to get as much dumb money (that’s us!) back in to prop up the markets. That’s both angering and worrisome for obvious reasons.
4. They are as oblivious as the rest of us to our financial future, but realize that their business models (read: hedge funds) rely on not only large amounts of borrowed money (which the government has provided at all-time low rates) but the leverage offered by cooperative dumb money that allows them to bid up prices and sell to us at all-time-highs, leaving us “holding the bag” when the market tanks. Make no mistake, this is a high-stakes game of musical chairs that will end with us standing when the music stops, i.e., when “they” (whoever they are) decide “the party is over.” Without notice and quickly the selling will begin in earnest and they will be out of the market long before we know what hit us! That’s not only disappointing, but rather worrisome and angering!

Investors should take little comfort in any of those scenarios. By the way, it’s not clear who can benefit from such savvy if contrary advice. The very wealthy who are rightfully more concerned with preserving capital than risking it for higher returns are not likely to buy into this strategy. Retiring baby boomers that barely have enough savings to live on and really can’t afford to risk losing their nest eggs at this late stage of their lives certainly can’t sign on to such foolishness. And Millennials struggling to earn a living wage and saddled with high student loan and consumer debt are unlikely candidates for such risk taking either. It would appear that only investors in the business of moving in and out of the market at opportune times (i.e., traders) are potentially able to capitalize on such advice.

Proponents of the “No Cash” strategy say history suggests that a long-sustaining melt-up is in the cards, but these are the same folks who have been telling us that historic metrics no longer apply and that a “new normal” precludes relying on old metrics to make forecasts. So what makes them so sure about a continuing market “melt up”? The question for investors is, will you feel dumber being in cash when the market rises or dumber being fully invested when the market tanks? For many who can still remember vividly the crash of 2008, the lesser of two evils in obvious.