How much cash are you holding?

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That seems to be the dominant question I am getting from readers.  Our long/short portfolio was as long as 86% not too long ago.

We have been doing selective trimming over the past few weeks, but nothing too aggressive. As of this morning, we were about 70% long, 30% cash.

We have no shorts at the moment. Our selling has been selective, based on individual names — not a market call. Markets remain in their range, and within 5% of recent highs.

Our last bear call (February to March) never really reached the deep levels we were hoping for. The next two levels that bear watching are SPX 1313, and 1249.

I am more inclined to be a bear here than the metrics suggest, but over the long haul, I have learned to trust the data rather than my instincts.

UPDATE: June 2, 2011 12 Noon
In our aggressive Long Short portfolio, we have added a 5% position in SDS and QID — those are the 2 to 1 inverse funds.

That makes us 20% short, 30% cash, 50% long . . .

Category: Investing, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “Cash Levels at 30%”

  1. I’m about the same as you (we must have similar trading styles because it seems you are always near my allocations) 25% cash in gold, maximum allocation in energy. The energy trading position is not fully built yet, that is this year’s project. I’m trading with a partially built death star at this point. The gold position is fully built and functional and I’m blowing up planets with it as we speak.

  2. market_disciple says:

    Thanks for sharing your portfolio stance as usual.

    My long position on equities got stopped out today. Regardless, to my surprise, equities have been remarkably resilient. Being selective at this stage of the rally is probably a smart thing to do now.

    Another surprise was precious metal group. It still looks bullish to me, which led me to establish another long position near the end of the commodity sell-off in May. Are investors anticipating QE3?

    BR, do you have any idea how much longer this current liquidity-driven rally would last?

  3. Arequipa01 says:

    http://www.creditwritedowns.com/2011/05/gundlach-how-much-currency-do-you-have.html

    Interesting POV from Jeff Gundlach (I would start about 4 or 5 minutes in). Opines about currency (as opposed to cash).

  4. nofoulsontheplayground says:

    Yesterday’s S&P 100 5-day High/Lows reached 70-4 ratio, indicating a very extreme overbought condition at the close. Typically when we get this overbought a pullback or consolidation follows.

    The overall put/call ratio is pretty high this afternoon, and the S&P 500 put/call ratio looks rather ordinary, suggesting this pullback is not exhibiting panic in the big boys’ offices as well as in your office.

    We’ll see if we get a stick save attempt into the close. TRIN and TRINQ are quite high right now and would need to reverse big time for a save.

  5. RW says:

    I’ve been too much of a pessimist this rally so I never got above 70% net long in equities (including hedges) and am now about 50% — 10% gold was a high as I ever got and have been trimming there too.

    The flip side of that pessimism is I was never in a hurry to liquidate long bond positions and going slow with that has made money all along. Bill Gross may be proven correct this year (although underlying economic trends suggest maybe not) but there is little question now that he was early in bailing on long treasuries.

    Not as early as notorious inflationistas like Niall Ferguson of course but then, unlike Gross, I don’t get the sense Ferguson puts his money where his mouth is. Ferguson has been calling for hyperinflation “any day now” for, what, maybe three years now? There just seems to be something about empirical evidence that elites don’t care for; at least they don’t seem to pay much attention to it.

    NB: Speaking of which, good post at Juggling Dynamite (http://tinyurl.com/3avegdn) on the meme that China is ‘diversifying away’ from US bonds.

  6. socaljoe says:

    The cyclically adjusted P/E ratio (shiller, hussman) is approximately at the level where prior bear markets have started.

    Any advance from here would be speculative and limited, in my opinion.

    My response has been to raise cash and move to high quality dividend growth.

  7. Lukey says:

    I’m about in the same place as you Barry. I think this action will set up QE3 (or at least 2.5) and we’ll still maintain an upward bias for a while (with lots of chop).

  8. nofoulsontheplayground says:

    The Trannies made a new 5-week low today, and the XLF (financials) made a new 5-1/2 month low today.

    Typically these are leading indicators for the market.

  9. dmeier says:

    70% cash, 30% stocks. Investing in mainly in niche companies with disruptive technologies and have a tiny sliver of Apple.

    Have been seriously considering buying volatility recently.

  10. nofoulsontheplayground says:

    TRIN closed at the highest level since the 8th trading session of August 2010. We dropped for about 14 more session after that last episode into the lows formed by Ben’s Jackson Hole QE2 speech.

    TRIN since summer 2008 has been essentially a function of the buying/selling action in BAC and C. However, the recent reverse split of C may have TRIN back working like the effective barometer of buying and selling pressure it was prior to the summer of 2008.

  11. DC says:

    It’s probably selective memory on my part, but it seems that these hair-on-fire selloffs often occur during holiday-shortened weeks. That leads me to suspect that many senior guys are at the beach/shore or mountains or wherever, leaving the second stringers to hold the fort.

    If a basic rule is to not lose money, then that might support the shoot first, ask questions later approach that seems to mark the mood on days such as this. As I say I’m likely just looking for a reason to ignore the gale flags flapping but maybe it’s not in the professionally crazy category (moon phases, skirt length, etc.).

    In any case I sold VTI early today to increase cash to 39%, then redeployed some into CMI at the end of the day at what I hope turns out to be a bargain.

  12. Sechel says:

    Don’t see how one canbe bullish here.

    1) Market is at very rich cyclically adjusted P.E
    2) Bonds are suggesting weak economic growth
    3) Consumer are spending more on Food & Energy which leaves less for everything else
    4) Home equity the ATM growth engine of the past is not coming back
    5)We just got confirmation of a double dip in housing so take housing away from contributing to GDP

    If we assume earnings grow 6% over the next decade and the Schiller Cape declines from 24 to 12
    1.06)*(12/24)^(1/12)-1 then we’re talking about zero return over ten years. Suddenly the Ten Year Treasury paying 2.95% doesn’t seem so bad….. relatlively speaking of course

  13. AHodge says:

    i sold most of my small long today. even some big faves
    leaving only a few put writes some illiquid BMW and fannie for longs. meaning at least 85% cash bonds
    i was hopin for a decent/ good ADP that would be refuted? by weaker payroll fri. oops that didnt work so far
    Did TBT calendar spreads w a friday expiry short end.
    in effect go long bonds into fri
    then short even more more, still not really big maybe, but could be real big before end june.

    I’d suggest you go with your instinct
    supported by the data on
    slowdown
    seasonals
    technicals/ direction
    end of QEs also japan

    but only if you can poss get back in as early as july?

  14. icm63 says:

    Been a bear for a couple of weeks

    http://www.readtheticker.com/pages/blog1.aspx?65tf=215_sp500-cycle-update-2011-05

    ALL in USD, double bottom, it will rise rise rise

  15. AHodge says:

    I smell fear here
    still shorts around but lots of weak longs desperate for some good news
    and a complacent VIX including forward VIXES

  16. SWMOD52 says:

    70% Cash. Overweight telco, big pharma, metals, mortgage reits, DBA

  17. Sunny129 says:

    ‘I have learned to trust the data rather than my instincts.’

    Today’s DATA confirmed my instincts re QE1, QE2 and their ineffectiveness in solving the problems of housing bubble and it’s aftermath!

    Many TRILLIONS later, those ‘problems’ still remain, those (criminals)who caused the problems are ‘still’ in charge of finding solutions!

    Investors have bought this ‘euphoric’ market on the idea that the Fed (Barnake) can spend it’s way into prosperity believe that ‘Debt on Debt’ can solve ALL the problems b/c of Debt!

    Is today, the beginning of unraveling of ‘ castles built up in the air’ after the initial House of cards collapsed?

  18. patient renter says:

    How much effort (if any) do you put into figuring out why your data is telling you something that disagrees with your gut?

  19. dead hobo says:

    patient renter Says:
    June 1st, 2011 at 5:21 pm

    How much effort (if any) do you put into figuring out why your data is telling you something that disagrees with your gut?

    reply:
    ——-
    Everyone has access to much the same data. People differ in its interpretation. To be data driven means little because everyone is data driven.

  20. JasRas says:

    Well the two things that were most noticeable to me today was how weak the TRAN was relative to the other indices, which is different from most of the last 4-6 weeks. The second being that Down volume to Up volume was 10:1 down which hasn’t occurred for quite a while. One time can just be a bad day, but if we get another in the next few business days it is likely locking in a change in trend for a bit… I wouldn’t underestimate the importance of the 10:1 down day as it shows a conviction in direction we haven’t seen in either direction, up or down, for quite some time.

    I think when we look back at this period, it will be obvious we were in the midst of a change. The weekly MACD on the S&P500 went negative in March. Economic reports started turning less rosie in late April. Most economists have probably grossly underestimated the impact of Japan on the global markets and economy. The bond people have been buyers of USTreas for over a month indicating that where ever yields were, they thought it was as good as it was going to get for a while. And the forward earnings on the S&P500 are starting to be adjusted downward by the fundamental guys. That said, it is pretty typical for the earnings to be adjusted downward during this time of the year…

    If you get out amongst normal people with normal jobs, normal homes in normal neighborhoods, then you hear things are not as well as the bulls of the street want all to believe. It is very much a tale of two cities in many places.

  21. JasRas says:

    Oh ya…25% cash.

  22. Winston Munn says:

    From sometime in the future…

    Barney Hogkins: Hi, once again folks. Barney Hogkins reporting from the site of tonight’s QE 33. The oddsmakers are making the Goldmans a 2/1 favorite. What’s your take on that Dan?

    Dan Droofnagle: It’s hard to bet againt the house, Barney, but my years playing for the Feds taught me not to underestimate their resolve. After all, there were a lot of folks who really believed that QE 1 and 2 were going to be the end.

    Barney: True, Dan, but’s that was back when houses were still over 1oo grand. Now that the 5-year house financing has caught on, prices may get back to their 1956 highs.

    Dan: Not without the Fed holding interest rates at -2% and buying credit card debt to create down payments. Hence, QE 33 is the only way to restore liquidity to the house credit-card markets.

    Barney: So you are saying that Goldman’s short position in credit-card-for-homes debt will be a loser?

    Dan: Are you kidding? With this much liquidity around, home prices can’t go down. Impossible!

  23. Mike C says:

    Everyone has access to much the same data. People differ in its interpretation. To be data driven means little because everyone is data driven.

    Really? In my experience, most people are driven by a combination of emotion, gut instinct, and plausible stories. I find very few people who are actually driven strictly by data and quantitative criteria.

    For example, I recently made a nice profit on a short SLV position, in at 44 and out at 33 on most my position (still hold 1/3). It was strictly based on data such as the percentage over the 200 day moving average, bullish sentiment percentage. In contrast, many people were buying at 40+ because they were greedy, afraid of missing the runaway train, and stories about silver conspiracies. Why were people buying homes in 2006 when house prices were 3 standard deviations above the norm and price to rent was outrageous? All those fools certainly weren’t data driven. They were buying into a meme that “home prices never go down” and they “aren’t making anymore land”.

    Most people data driven? Total nonsense.

  24. davossherman@gmail.com says:

    Cash is trash. All paper is trash.

  25. VennData says:

    Cash is Trump

    — Don King

    …did I get that right?

  26. robert d says:

    I am very afraid of the political climate. Did anyone listen to the GOP
    guys after they met Obama?
    I am also very afraid of the economy and thus the stock market.
    If unemployment does not begin to recede, which i do not see,
    Sarah Palin could be riding her bus through the USA collecting millions
    of followers. This, to me, is so reminiscent of the rise of Hitler in the
    early 1920′s.
    As a reader wrote above, hyperinflation is already beginning to happen.
    What is hyperinflation? Too much money chasing too few goods. If the
    oil situation in the Middle East doesn’t scare you, what will. The Arab Spring
    is turning into the Arab summer. (anyone travelling to Egypt, or Bahrain,
    or Syria, or the Lebanon, the Gaza Strip, Libya, Morocco, or Israel this
    summer? One day we could see a large part of the Arab world in flames.
    Which way would the Arabs turn? Oh, I forgot to add Iraq, Iran, and
    Afghanistan to the list above.
    We have so much debt that we have no maneuverability. We the people
    and we the government. Yes, the corporations are re-liquified but the banks
    are all broke…..and everyone knows it. Add the ridiculous derivative situation
    and i defy anyone to explain how disastrous things could get. Carl Icahn and
    even Mark Mobius are predicting major dislocations. And these two are not your normal
    negative guys.
    So I am very long the VIX and short OPEN and many other stocks. Today’s
    10 to 1 down to up volume is just the warning shot over the bow.

  27. dead hobo says:

    Mike C Says:
    June 1st, 2011 at 7:51 pm

    I find very few people who are actually driven strictly by data and quantitative criteria.

    reply:
    ——–
    Score 1 for the home team. Only an idiot would be totally data driven and/or totally use quantitative criteria. Or claim to be.

  28. dead hobo says:

    Mike C,

    You need to use your personal experience to interpret the data. Everyone is data driven. Only idiots let it rule their analysis to the exclusion of everything else. Two people see the same facts. Interpretations differ. Both are data driven. It’s possible only 1 draws the correct conclusion.

  29. [...] bottom line remains this is a challenging set of conditions to navigate. Our 30% cash position reflects that . . [...]

  30. DeDude says:

    “Cash is trash”

    Did you put your money where your mouth is? – and if so, where is that?

  31. Seth Klarman has a great insight into this “cash” thing.
    And so did Howard Marks, Grantham, Hussman and others…

    The next move up might be around the corner, but odds have tilted to the other side right now.

  32. [...] mentioned on Wednesday that we shifted our asset allocation towards a more cash heavy weighting (30%), then the next day, [...]

  33. [...] On Wednesday, Ritholtz announce&#100&#32&#116hat his firm had made the moves, and moved to a 30&#37&#32&#99ash position, according to his blog. [...]

  34. [...] took our QID and SDS leveraged shorts off [...]

  35. [...] A few weeks ago he picked up some aggressive positions via leveraged short ETF’s. [...]