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The Newest Bull Market-CASH

There's recently been an extraordinary number of posts devoted to the correct allocation of cash if any in investors portfolios. These have ranged from the traditional 6 month expenses or rainy day amounts to a zero cash allocation. I think this interest in cash stems from the uncomfortable feeling some investors have after seeing a 5 year bull market make trash of cash as well as an accommodative Fed turn cash into a wasting asset adjusted for inflation. The other seldom mentioned fact are the huge cash balances sitting in money market funds that are often described as just waiting to get into equities. These large MM balances are often used to justify a continued bullish equity stance. I doubt these arguments.

I believe that cash is entering a bull market. If contrarian sentiment is used to justify specific investment positions it could also be used to indicate the appropriate cash allocation. The equity sentiment indicators are currently flashing extremely high bullishness which tell me to get long cash. Interest rates or the lack there of due to financial repression (I love that term) have been in a bear market so long that all the high coupon CDs have since matured and rolled into no return paper. A lot of this money has found its way into yield stretching exercises(pun) like perpetual preferreds, covenant light paper, MLPs, REITs etc. You get it because you are the ones doing it. This is very bullish for cash as there is always a bid for cash, not so much for a junk rated Puerto Rico muni. Cash is fungible for anything, not the opposite.

Cash has been in a bear market for so long there are professional money managers who have never owned a 6% coupon Treasury of any maturity. In this economy where renting is the new American dream, young people do not aspire to own a car, but rather to rent by the hour, and even Japanese govt bonds are rising in yield, I believe cash is entering a secular bull market. For cash to enter a bull market it means the yearly ROR is higher than some or all of the alternatives. I believe this will be the case especially against equities which I think are entering a period of under performance and higher interest rates will make cash the over achiever. At the very least investors should raise their cash position to levels that make them feel uncomfortable as they read and listen to the bullish pundits. In a bear market, the money is returned to its rightful owners.