America’s Cash Bubble set to Burst January 31, 2024 by Tradesmith Analyst Jason Bodner Senior AnalystTouting a risk free trial of The Tradesmith Investment Report for $49 – should I be worried and subscribe so I can find out what to do with my cash (about half my portfolio in treasuries)?
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I subscribe & believe Bodner is one of the best in the business.
Thanks for your comment and assessment.
So what is he suggesting that makes sense to you?
His big-picture argument is that there’s a “bubble” in cash because everyone poured money into Money Market Funds and Treasuries when rates went up, to lock in those ~5% yields that we haven’t seen for more than a decade. The bubble “popping”, though, is not that somehow your cash will evaporate or disappear when the “bubble” pops, it’s that the money in cash will rush into stocks once the Fed starts talking about cutting rates (perhaps at their next meeting at the end of January, though I’d be surprised if it happens that soon), the “popping” will just mean that people will pour money into stocks because interest rates will fall, and therefore you’ll miss out if you don’t also buy the right stocks before the end of January. It’s an opportunity cost risk he’s talking about, not a “you’re going to lose your money” risk.
I’d argue that anticipation of the Fed cutting rates is probably the primary reason the stock market has soared 20% in the past year, mostly since the October lows, so it’s certainly true that anticipating lower interest rates drives people to want to buy stocks (and bonds), but we should also remember that the Fed has almost never cut rates in a rapid or meaningful way when the economy was doing fine — they usually act quickly only when there’s a crisis or a crash. Which means trying to get out ahead of rate cuts can be somewhat like trying to buy stocks before they crash — not always, but it’s a risk.
I’m not at all worried about my cash, I have enough to let me sleep well at night and give me a little buying power if the market falls… and I’m almost fully invested in the market most of the time, so I’m also not worried about missing out on some surge if cash comes pouring back into stocks. Trying to predict those macro moves with any kind of precision tends to be a fool’s errand, so it’s better to be prepared for a variety of possible market environments than it is to try to predict what the financial world will look like in a month or three months.
Thanks for taking your time to answer and explain – much appreciated!
Thanks Travis! I just watched the video pitch. And while I know anxiety and fear are their lynch pins I do wonder what’s really under the hood. Again, thank you for helping us see.
Interesting that they always seem to mention how the big money managers are making xyz moves and they quote BOA and other big money houses (usually out of context) t0 excite their pitches.
My question to BOA is how do I, as one with money at Merrill Lynch, learn where their money managers are investing funds to take advantage of this coming ‘pop?’ All I hear is to put cash into scaffolded bonds and sell my high performing stocks to “balance” my portfolio allocations.
thanks, interesting perspective as a Merrill Lynch customer
I’m learning to never sell the big runners to ‘balance’ a portfolio. I just use a trailing stop and usually regret that too.
What’s the latest info on this?
I have recently noticed that when a company like NVidia announces the group of partner companies they work with, those other companies tend to have their stocks rise significantly.
Is there a name for this phenomenon, and is there some way I can invest in this?
Second question is: I’d like to find an accurate way to invest in pre-IPO companies with excellent growth opportunities.
With predictive analytics (Tradesmith for example and their An-e analytical predictive engine) does anyone have a similar way to invest money in “highly likely to be successful;” start-ups or new companies? Think like an Apple or Amazon, however with perhaps a 1,2, or 3 year time frame to the IPO.
Please advise.
Thank you in advance for your help and insights.
Charles
As the NVIDIA disclosures indicated last week, it’s mostly luck and storytelling — none of those were new NVIDIA partners or new shareholdings of theirs, but stories about the disclosure caused a quick frenzy of buying. That kind of trading is very hard to predict or guess at, though I guess we all could have guessed that NVIDIA might have to file a 13F now that ARM is public… the problem there would have been trying to predict and bet on irrational investor behavior, which probably often works but is probably not predictable enough to make much money from it… especially if you’re betting that investors will do something foolish like bidding up TuSimple at the end of last week, because betting on that would have meant buying up a nearly worthless company in hopes that other people would be foolish enough to buy it after you. It’s easy to see how that would bite you more often than reward you, but one never knows.
There is precious little data on pre-public companies, so any data about them would be proprietary, and they are not anywhere near liquid enough to have real trading data — the companies who are “very likely to be successful” and are 2-3 years from probably being ready for an IPO are all going to be primarily owned by insiders and very large venture funds, and they are usually valued pretty richly on the odd occasion when shares are traded on the private markets (usually very thinly, just sales by a few employees who want out and can’t wait)… facebook shares that were sold on the private market in the year or two before it went public were sometimes priced higher than the public shares at the IPO, and much higher than the public shares traded at during their post-IPO dip in price. These days, such companies are likely to be quite large, too — companies stay venture-funded for a lot longer than they used to.
The companies most likely to be available to small shareholders, either through private placements or through the crowdfunding and crowdvesting platforms, are usually very small and are very unlikely to ever go public… the best hope from those is that they might grow enough, and become profitable enough, to be acquired at a premium price and therefore get your shares bought out. The best and most likely to succeed candidates, at least in growing fields, are most likely to be funded by venture capital firms who can also guide those companies and provide board members and connections… so usually what’s available to smaller folks like us is the dregs, someone trying to start a small restaurant chain or sell a new brand of vodka or something similar that’s extremely hard to scale to profitability.
Your idea is a good one, companies that are big enough to be sustainable and likely to be 2-3 years from an IPO have a pretty good record of success, but the challenge is that the shares are very unlikely to be available to you at a rational price, or at all.
What makes the stocks recommended by Bodner good opportunities for the anticipated cash bubble? Why would they differ from the best stocks which we are all trying to indentify?
What makes the stocks recommended by Bodner so different from the most promising stocks, which we are all trying to identify?
One of his portfolios has maybe 20 stocks and only 2 are down. The problem is they’re all above his buy price, some way above. Following how he recommends buying stocks, I’m a newbie who would be chasing all in his portfolio.
Get out of cash