March 15, 2013
A cash reserve has been raised in our US ETF accounts. A partial cash reserve has been raised in non-US ETF accounts. Our clients will see them in the online-access versions of their account statements.
Why did we raise cash?
Stock markets have become extended, particularly in the United States. Nothing goes straight up or straight down forever. History shows stock markets can have 3% to 7% corrections at any time.
The present long-term bull market started in March 2009. It was reaffirmed in November 2012. It is still intact. That said, most measures of market movement, sentiment, direction, and momentum have reached levels of intensity that approach extremes. This is primarily a US phenomenon.
We believe prudence requires a cash reserve as activities in Washington and the rest of the world continue to unfold. A part of the stock market’s momentum is driven by events. The present schedule and scale of events is not conducive of a fully invested position anymore. That could change rapidly.
FOR TODAY, we have instituted and are maintaining a temporary cash reserve. Note the words for today.
In this very fluid, event-driven world, one has to be prepared to change quickly. The temporary cash reserve may be re-committed at any time.
We fly to Paris on Sunday and on to Dubai by mid-week. Discussions of global events will ensue.
We will report from the road as we can.
David R. Kotok, Chairman and Chief Investment Officer, Cumberland Advisors