Rather than relying solely on past performance, CFRA combines holdings-level analysis with additiona...
Cash Is King
12/16/2015 9:00 am EST
With many of the markets currently looking toppy or vulnerable, we recommend keeping a larger than normal cash position, cautions Mary Anne and Pamela Aden, of The Aden Forecast.
Even though this will likely be temporary, we feel it’s your best bet at this time, while we wait for good investment opportunities.
We know this isn’t the most exciting thing in the world and it’s not often this happens. But occasionally sitting in cash is the best investment you can make, especially when there aren’t many options out there.
The US dollar has now reached the moment of truth. It’s near its March high where it’s been resisting and it still looks toppy. But if the US dollar index rises and stays above this high at 102, it’ll be super bullish, signaling it’s going much higher, regardless of what anyone wants.
If that happens, it could coincide with a rise in interest rates because they’ve generally been moving together since July. And the deflationary break of the past year will have changed.
Keep in mind though, the US dollar’s mega trend is still clearly down and it has been since the 1970s. So if the dollar index drops below 93, it’ll be a clear sign it’s headed lower and probably resuming its downtrend.
Once that happens, the currencies will move up strongly and you’ll then want to be onboard with a larger position in the strongest currencies.
Taking the euro as the example, note that it’s at a strong support level, which has been in force since the ECB’s QE stimulus started. This support is at 1.05 and if the euro stays above that level, it’ll continue to form a bottom.
And since these oversold levels coincide with major lows in the euro, this too is telling us that a euro bottom is near (top in the US dollar). This will be confirmed on a sustained rise above 1.1450 for the euro.
As for the other currencies, they are all essentially back in the same boat. If the euro heads higher, they’ll go along for the ride. The oil exporting countries are the exception.
Overall, this is temporarily a time to sit in cash while you wait for good investment opportunities. Cash is king, and the king of cash is the US dollar, at least for the time being.
Having sold half of our bonds, we now advise keeping 65% of your total portfolio in cash, broken down as follows: about three-fourths in US dollars and one-fourth divided between the euro, British pound, and Canadian dollar.
Our recommended exchange-traded funds for these currencies are the Guggenheim CurrencyShares Euro ETF (FXE), the Guggenheim CurrencyShares British Pound ETF (FXB), and the Guggenheim CurrencyShares Canadian Dollar ETF (FXC).
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