Chris Lau - Seeking Alpha

Thursday, March 05, 2009

All Cash

This was the comment made in regards to Castlemoore's Focus Portfolio on Tech Talk:

Depression, not Recession. That’s the Impression.

There. We’ve used the “D” word. And we’re not the first.

While everyone agrees that depressions are extreme economic situations to be avoid at extreme costs—the U.S. stimulus package is a case in point—it’s hard to find a consensus as to what the term actually means. Many consider it to mean a contraction of 10% or more in U.S. GDP, which has happened twice, and a severe case to be a 25% fall, which happened once.

We know that recessions are part of naturally occurring economic cycles, irrespective of measure taken by governments and central banks to manage them. Therefore, one way to define a depression is as an economic retraction that is not simply “naturally occurring”. In other words, it involves some type of structural change which might not be evident at the time and may, in fact take years to recognize.

And what causes us to recognize it is usually the remedies imposed to insure that it doesn’t happen again. In the case of the current economic malaise, we expect that new regulations pertaining to lending practices of banks to a large part of that remedial package.

Whether or not we are in or are entering a depression, we at CastleMoore were depressed enough to sell out everything and start back at square one. Of course, we say this tongue-in-cheek, but we certainly are aware of the dangers that lie in wait for unsuspecting investors who have and continue to fall into the value trap engendered by continued declines in the financial markets.

Our plan was to ease out of the cash position we had amassed, deploying more of it as we became increasingly confident that the intermediate rally was firmly entrenched.

We continue to hold fast to the notion that, once the dark smoke of economic uncertainty clears there will be a once-in-a-lifetime buying opportunity.

For now, it’s back to square one.

If you like to receive bi-monthly newsletter, know more about our model portfolios or access an audio file of our investment philosophy, “Modern Financial Fiascos”, click on the link . We are also accepting interest for an upcoming webinar later in March which can also be indicated on the same form.

CastleMoore Inc. uses a proprietary Risk/Reward Matrix that places clients within one of 12 discretionary portfolios based on risk tolerance, investment objectives, income, net worth and past investing experience. For more information on our discipline and methodology please contact us.

Comments and Analysis: 40% of the mutual funds held by investors are in money market cash funds. People (are they speculators or investors?) are stuck on old ways, thinking in old terms by buying on value or buying on the dips. The wrong action, it seems, is pulling the trigger and deploying the cash on the dips. Yet, how can uncertainty in the foreseeable future most accuately valued? That is the question.