The Trend

Why These Billionaires are Moving to Cash...

Mohamed El-Erian has never been a typical investor.

His understanding of the very crosscurrents impacting the investment world is impeccable.

In 1999, he dumped $2 billion of Argentine debt two years before the country defaulted.

In 2002, he took a bullish position on Brazilian bonds as rivals sold on concerns that new socialist president Lula da Silva would sink the country into default.  Shortly afterwards, he watched as Brazilian bonds rocketed after the president cut expenses and the deficit.

He’s been nothing short of legendary.

That’s precisely why his latest move should have all investors concerned about the direction of the markets right now. 

Nowadays, he’s shifting to cash because “we’ve priced in no policy mistakes,” he says. “We’ve priced in no market accidents, and we’ve ignored all sorts of political issues.  It makes total sense to take some money off the table.”

And he’s not the only one.

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With the Dow just a stone’s throw from 20,000, the press is still clamoring for new highs. 

Confidence is soaring on hopes for ecnomic stabilization and growth.  Traders have thrown caution to the wind, and flooded markets with billions of dollars. 

All is well… or it would seem.

Meanwhile, the Volatility Index (VIX) has slipped to just above 11 , hovering near its lowest levelof the year.

But that’s a problem. 

With the VIX so low, it infers that investors aren’t worried about downside.  If we have just one moment of disarray, it all comes crashing down, with no preparation.

Some of the big guys on the Street aren’t waiting around, though.

Much like El-Erian, DoubleLine Capital founder, Jeffrey Gundlach has noted that the market rally, the surge in Treasury yields, and U.S. dollar strength appear to be losing steam. 

“There’s going to be a buyer’s remorse period,” he says.

Bill Gross has even warned investors should move to cash, as any gains will be “temporary at best,” he notes.  “Investors are misguided in betting that promised tax cuts, infrastructure spending and deregulation will spur faster growth.”