Is that statement heresy coming from the mouth of a self-confessed 'value' investor? Not when you understand what the central banks of the world are doing.
The U.S. Federal Reserve, the Bank of Japan (BOJ) and the European Central Bank (ECB) have all chosen to print unlimited amounts of fiat-based currency to 'solve' their similar, but varied in nature, debt problems.
Last fall's Japanese election was won on the promise to destroy the value of the yen. This action was meant to boost exports, create inflation and kick debt maturities further down the road. Since the election, the foreign exchange value of the yen has plummeted almost 20%.
Everything imported into Japan now costs much more. Japanese stocks have skyrocketed as the only defense citizens have to try to preserve true purchasing power. The abrupt rise in the Nikkei 225 was a direct response to the destruction of the value of the currency. It signified a flight away from fiat-based yen rather than an immediate increase in the value of all Japanese companies.
The same process is happening here in the USA. Stocks are going up despite putrid economic data like last week's jobs report and the decades-low labor participation rate. The smart money wants to be in 'anything but cash.'
Many people comment that U.S. stocks are too expensive to buy. They cite the current trailing P/E ratio of the S&P 500 as proof that shares won't go higher. The broad market is trading slightly above normal levels. However, competing investment choices are lacking in any ability to protect against the blatant ongoing devaluation of the U.S. dollar.
Artificially low interest rates are now at pitiful levels, which ensure loss of buying power over time.
Even Inflation Protected Bonds (OTC:TIPS) now offer negative real interest rates.
The crazy-high multiple in early 2009 was the result of massive financial write-offs, not optimistic P/Es. That rendered it completely non-meaningful as a judge of relative value.
10-year treasury rates of 1.72% make the present S&P 500 multiple a bargain compared with all available fixed income products.
Market P/E ventured north of 20x when rates were a shade above 4% back in the early 1960s. Holding cash only works as a short-term strategy while waiting and hoping that equities sell off so you can get in at lower prices. That might happen but anyone who took that approach before year-end 2012 is way behind those who simply put cash to work in November or December.
Add the effect of the Fed's $85 billion per month money printing to record-low yields and you have the only reasons you need to keep the bulk of your net worth in stocks. There really is no viable alternative.
The Cypriot confiscation of citizens' life savings from bank accounts was indeed a template for what is likely to come worldwide. Japan's dramatic gutting of its own currency should serve as advance notice of how to best handle what's happening here.
The dollar will continue to lose value. Ownership in solvent companies provides your best chance to preserve value in something that can be marked up to market as paper money is marked down.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.