Be Wary of Cash

Cash is not really a good investment.  The time to be in cash was 1 year ago, before the stampede of declines.  Those touting to be in cash right now may be late to the party.  We're already 1 year into the market declines, and if recent history is a good indicator, we're already passed the halfway mark for this decline.  Obviously, what we've experienced thus far isn't the same, but history still serves as a guide.

History tells us that markets bottom 6-8 months before the real economy recovers.  If the bottom was set earlier this month, then we're looking at late spring 2009 to mark the end of the recession.  That's two quarters from now.  And, it also means that we're going to see ugly GDP numbers, probably first with a negative revision to this past quarter's figure and then a weaker 4Q number.  The kicker should be a disastrous 1Q09 figure.  Unemployment numbers should also keep rising with the tide.  Watch for these tell-tale data.

But, what I'm really getting at is that you (or your money managers) should not be hoarding cash anymore.  Instead, you should be slowly deploying that mound in the coming months into recovery opportunities.  Next week should witness a retracement and those who defy the trend and lead us out of that could possibly well be the leaders of the next primary bull market.  Cash should be invested precariously over the next few months in these names.  Just don't get too comfortable sitting on cash right now.