Hedgephone readers know we have been in cash for most of August, but they also know that we are scared for the US Dollar here and define our portfolio position in cash a bit differently than most people. To us, cash is a concept that includes foreign currencies, gold and silver, US Dollars, etc…
When we say cash in our market model we mean something along the lines of this:
10% Canadian Dollars
10% Australian Dollars
10% British Pound
10% Swiss Franc
20-40% US Dollars
Right now we feel that equities are fully valued and that liquidity risk factors including margin debt and low mutual fund cash levels could see near term pain ahead for stocks. Over the longer term many names are beginning to look cheap at current valuations and many others appear overvalued. The use of diversification can help long short equity investors profit in down markets as well as up markets.