Build cash positions ahead of extreme market moves, strategist says
People eat outside of the New York Stock Exchange (NYSE) on September 16, 2021 in New York City. The Dow fell on Thursday despite a surge in retail sales. Investors continue to be concerned by the delta variant of the stock exchange and the news about a slight increase in unemployment claims.
Getty Images Financial markets appear vulnerable to what could be an extreme move in either direction, according to Paul Gambles, co-founder of investment advisory firm MBMG Group.| Getty Images News | Getty Images
Financial markets appear vulnerable to what could be an extreme move in either direction, according to Paul Gambles, co-founder of investment advisory firm MBMG Group.
Gambles advised investors to avoid taking risks and increase their cash position.
His comments come as market participants remain cautious given a flurry of risks on the horizon. These fears include rising inflation, concerns over the economic outlook, ongoing concerns regarding supply shortages, valuation issues, and concerns about price volatility.
Some investors are also wary of the possible implications of China’s indebted property firm Evergrande, which is on the brink of default.
We advise being cautious. Gambles said that the market was very well poised and waiting for what could potentially be a very large move on CNBC’s SquawkBox Europe.
He said, “We don’t know which way that might go; that may not sound very helpful. But there’s so much unanswered right now.” We advise that you do not take on what may be a very big hit and potentially a long-term hit until we get those answers.
Gambles said MBMG Group, which says it has over $1.5 billion assets under advice, has looked to raise cash levels “quite dramatically” of late, warning market risk had “suddenly gone up and off the scale” compared to just one month ago.
He said that gold and miners are “one of best ways to hedge risks” at the moment. This suggests there is still value in Treasuries.
Gambles stated, “Take these profits.” You should not be afraid to miss out, but be willing to accept the possibility of some very serious losses in case of a reversal.
We aren’t saying there’s an absolute crash here. Far from it. Gambles stated that it is a flip of the coin as to whether or not things turn out well.
It was the first time Gambles had advised clients to keep cash for some time.
Gambles stated, “This is an important moment in our lives and we don’t know whether or not it will be a positive outcome.”
Not everyone is in favor of building cash positions.
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, told CNBC’s “Squawk Box” earlier this week that investors should not deal with market risk by hiding out in cash.
Dalio spoke at the New York City’s SALT conference, “Don’t keep it in money.” Dalio, who said “cash” in January that cash was garbage, stated that this sentiment is still held by him on Wednesday.
Ray Dalio (billionaire investor, founder of Bridgewater Associates) pauses in a Bloomberg Television interview held at the Grand Hyatt Beijing on Tuesday, February 27, 2018, 2018.
Bloomberg via Getty Images Instead, the hedge fund billionaire said the most important thing for an individual investor was to know “how to diversify well.”| Bloomberg via Getty Images
Instead, the hedge fund billionaire said the most important thing for an individual investor was to know “how to diversify well.”
Dalio claimed that diversifying across currencies, countries and asset classes will outperform investing in cash.
Daniel Lacalle, chief economist at Tressis Gestion, told CNBC on Friday that he expected financial markets to turn lower in October, saying a constellation of factors could force investors to come “back to reality.”
Lacalle indicated that “What we will likely see” is the reaction from aggressive and overly optimistic expectations of the recovery. However, he noted that there has been no recovery.
Lacalle claimed that the market’s expectations had been far too positive and were now “implanted” in earnings projections. A market correction could also be triggered by tapering at the U.S. Federal Reserve Bank and European Central Bank as well as worries about China’s slowdown.
Lacalle stated that there was little risk of a very aggressive correction, or a spillover to the sovereign debt markets, as the Fed and ECB are expected to remain supportive.