Don't Be A Sucker, Take Your Gains
Nothing is screamingly cheap.
The easy money has been made in both equities and fixed income. From the low point in March, it seems you can't pick an asset class that hasn't gained something in the area of 60%. That was some fear discount back in March.
During this universal recovery, as in most post-recessionary periods, lower-quality high-yield bonds have outperformed quality issues, and lots of smart guys who had the guts and money to buy them at the depths are cashing out--convinced that risks of continued exposure outweigh possible rewards of staying long.
"It's past the time to lighten up, no reason to chase risk assets from currently lofty valuations," says Paul McCulley, managing director at Pimco. "To the contrary, the time has come to begin paring exposure to risk assets, and if their prices continue to rise, paring at an accelerated pace."
That's what Guardian Life Insurance chief investment officer, Thomas G. Sorell, has been doing with his $30 billion portfolio after unexpected gains of 50% in high-yield bonds and leveraged bank loans that he purchased at distressed levels. The problem is that the yield on cash is zero. Cash is trash right now, and promises to continue to be.
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Money market funds, according to latest numbers, are down half a trillion on the year. Stock mutual funds have drawn a measly $5 billion, while taxable bond funds have drawn almost $250 billion, and municipal bond funds $60 billion.
The big winners since the stock market bottomed in March have been emerging-markets stocks, up a stunning 99% on the iShares MSCI EAFE Index ( eem - news - people ). Corporate junk bonds are up 50% as measured by the iShares iBoxx High Yield Corporate Bond ( HYG - news - people ) ETF, while the iShares iBoxx Investment Grade Corporate Bond ( LQD - news - people ) fund is up a comparatively modest 21%.
Exit question: Isn't cash a risk asset these days? Particularly dollar.