Cash Is King? Maybe Not!

The Fed lowered their target rate today to a range instead of a stated rate.  The range will be 0-.25%  As I said on my show this morning, any movement down wouldn’t be a big shock, it would be the statement that went along with it.  Well, the Fed said in their statement today they would keep rates low for a long time.  In addition, they will continue to buy agency bonds keeping long-dated rates lower.  This will help refinancing and hopefully new & existing home purchases.  Remember, home prices falling is what really started all of this.  The market responded well with a 90% upside volume day and a 300+ point gain for the Dow.  The volume wasn’t heavy but heavier than yesterday.

We all know cash has been king for most of 2008.  Especially since July 1 when commodities peaked and the dollar bottomed.  But, the Fed is making it very difficult for all of us to hold cash.  Yielding 0% but purchasing power going up has been ok.  Remember, I wrote about that just last week.  But, with the dollar falling fast now, earning 0% and losing purchasing power, that’s a different game.  So, maybe cash isn’t king anymore.  There certainly isn’t a green light to buy stocks.  But, closing above the 50-day moving average is a positive.  We’ve had the weak pullback over the last few days and that was a positive.  But, maybe the most positive thing stocks have going for them right now is the simple question, “where do I put my money?”  “I’m getting nothing and the dollar’s weakening, I need to buy something.”  Everything competes for your dollars and my dollars.  Sometimes holding them makes sense and sometimes getting rid of them makes sense.  We always want the best deal.  Earning nothing while prices of other things are going up isn’t the best deal.  Maybe it’s depressed stocks or depressed land.  Maybe it’s global growth. 

I think we could see a few days rally for the dollar and maybe a quick reversal, but this trend of weaker dollar and a move back into global growth including metals could be a longer-term trade.  I’ve been buying some global growth stocks lately.  I’ve kept my shorts on the overall market and will sell them on another major selloff or I will gradually reduce them as the market improves in stages.  But, it’s important to be diversified right now.  You have to continue having exposure to bonds especially after the Fed’s statement today.  But, nibbling on stocks  has made sense lately as well.  Just don’t overdue it.  The market’s improving in stages and our portfolio should be doing the same.

Not a bad day.


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