Cash Is King- 2011 Version

Yes, it has been a long time. We are at the half-way point in 2011 and the is my first entry of the year. I've been scratching my head for the past 8 months wondering why the market is still running as high as it is? The main reason is the internet. If you have noticed the volatility of the market over the past couple of weeks, it has been fueled mainly by rumors back and forth about the situation in Greece. The bottom line about the good and bad news about Greece is that there is no substance about the news being given. One day, the headlines will be that the EU has a "good feeling about containing Greece's debt issues", and that's all that is said. The market promptly jumps 1%. The next day, the opposite is said with as little detail and the market promptly drops 1%.

Stop listening to the news. Greece is just the first of many European countries to get bitten by the debt bug. Most of the countries in the EU back each other when it comes to debt. The problem with that is when one country cannot be helped (Greece) the burden will become too much and the weight will send the other countries in the EU tumbling like dominos. The best bet to avoid that is with the EU breaking apart and each country going back to their former currency. Each country needs to clean their own house.

While the EU is a disaster, the US isn't in much better shape. My person opinion is that the overall equity market, bond market and precious metals (silver is the exception) is overvalued. This will be an issue when interest rates come up within 6-12 months. Bonds will begin to lose value with the rising interest rates, but with equities and precious metals still overvalued, the only place they can go is into cash.

However, if interest rates do not increase, the weaker dollar will drive down US equity earnings, which will trigger a sell off into cash, since the weaker dollar will drive up precious metals and low interest rates will leave bonds high. Cash is the only destination.

Cash is the place to be now. Take your profits and sell your losers. Do I recommend going 100% cash? No, but I'd start tip-toeing out of a large portion relative to your goals and investing horizon. Currently, everything is heading downward, so have your cash ready. If Greece defaults while the EU is still intact, Europe could be heading toward a depression, which in turn will spread worldwide. Good luck, we're going to need it.