We have recommended a reduced exposure to equities and increased allocation to cash for months. This reallocation of assets has obvious benefits.
Equities are obviously vulnerable (still 4% below the January 2018 all-time high with asset inflation in FAANG stocks, financials and other sectors). Cash offers the double benefit of reduced portfolio volatility and increased optionality. That cash-linked optionality is valuable in a market crash because you can go shopping among the knocked-down stocks and pick up some strong long-term plays.
Warren Buffett has been validating this; he’s up to $111 billion in cash at Berkshire Hathaway and that stock is hitting record highs. Suddenly, the cash endorsement field is getting crowded. According to this article, major institutions such as OppenheimerFunds, Federated Investors, BMO Global and many others are moving from equities to cash.
Their motives are not partisan, but they are political. The midterm House election results are highly uncertain. A Democratic victory could lead straight to impeachment, while a Republican victory could be an economic booster shot. Take your pick.
Institutions despise uncertainty and the best way to deal with that is move to cash and bide your time. Our readers are ahead of this curve. Still, the article is a good reminder that the cash move will get stronger, not weaker, until this fall.
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