# The move back to cash



## mick2006 (20 October 2007)

I don't know about some of you guys, but over the last week or so I have been taking the chance to clear most of my positions and head back to the safety of cash, now standing at around 95%.

I recently got the feeling that the market was feeling toppy and due for another correction and judging by the action in the US overnight I might have got very lucky.

While the rampant speculation in the spec mining sector has created enormous wealth over the last couple of years (myself included) you just get the feeling that it maybe time to look at some more conservative investments.

With another 2 interest rate rises now well and truely on the table, some of the online savings accounts will likely be paying 6.75-7.25% which is a nice safe investment (although not really exciting)

be interested to hear peoples thoughts on the shorter term market outlook.


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## Flying Fish (20 October 2007)

ING direct is paying 7% from September to December.


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## Synergy (20 October 2007)

Well monday isn't looking very pretty. I wish the USA would just go away. Nothing but trouble. Wheres that stupid tim-tam genie when you need him??


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## Flying Fish (20 October 2007)

lol I think the whole of next week will be an abortion, pardon the pun.


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## sam76 (20 October 2007)

Flying Fish said:


> lol I think the whole of next week will be an abortion, pardon the pun.




Is next week really going to be that bad?

I would like to know what percentage of the fall was due to it being the Black Friday anniversary?

just my 2cents.


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## greggy (20 October 2007)

mick2006 said:


> I don't know about some of you guys, but over the last week or so I have been taking the chance to clear most of my positions and head back to the safety of cash, now standing at around 95%.
> 
> I recently got the feeling that the market was feeling toppy and due for another correction and judging by the action in the US overnight I might have got very lucky.
> 
> ...



Hi Mick 2006,

I too have sold most of my shares. Infact, the only one that I'm now holding is MHL which I bought on Thursday at 3.2c. It finished at 3.4c yesterday, but may  fall back a bit on Monday.  I've also put some of my cash into a managed fund (Aussie large caps) during September.  
There is nothing wrong with taking some profits off the table.  Our market has certainly performed strongly of late and a pullback may lead to several market opportunites.
DYOR


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## INORE (20 October 2007)

After selling all my CUL yesterday i'm all cash now too. a friend of mine started talking to me about the anniversary of the crash coming up and something about the A and B and C of the market...i think we had the A and B and the C was yet to come....Crash or Correction...who knows....but i will be back during weekness and may also go something not so speccy...perhaps RIO or BHP if they have a big dive....we had a meeting at work yesterday highlighting how BHP want to double iron ore production over the next 8 years, from 150 million tonnes/year to 300.   that tells me a lot of things about what the worlds markets are expected to do in the future...


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## Bushman (20 October 2007)

Last time around (August) it was a fire sale auction down and then up. Are Aussie investors savvy enough this time around to disconnect with the faltering US equity markets in a time when unemployment is at historic lows and commodity prices are healthy?

I am still fully invested at the moment - all stocks i hold have newsflow coming up in the next few months. Will see how Monday pans out. There is no way I am selling my gold producers at the moment but it might be better to take rest of the table if I can lock in a decent price in the inevitable fire sale. I had the feeling that the US was overbought but i did not see 2.5% in a day on the DJIA. Guess I should have paid more credence to the 'Black Monday' psychology. The greed and fear pendulum is aswingin' again.  

Dammit the Yanks and their trigger fingers. Just as things were starting to look interesting again.We will see. Glad I held on as the last 6 weeks has been a bonanza. But panic is panic and geared up investors have short memories.


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## wayneL (20 October 2007)

I think there could be more to this than Oct 20 psychology. There is more crappy news coming from the credit markets.

Then again, it could all be shrugged off like last time. I think early next week could be pivotal.


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## Bushman (20 October 2007)

wayneL said:


> I think there could be more to this than Oct 20 psychology. There is more crappy news coming from the credit markets.
> 
> Then again, it could all be shrugged off like last time. I think early next week could be pivotal.




True. This time around it was industrials like Honeywell not meeting profit forecasts that led the stampede for the exits. 

I must say that liquidity issues are starting to bite in my company as it is difficult to justify retails asset redevelopments when interest rates are +8% and construction budgets are tight. So you are left with three options -equity fund (who is buying into US retail assets at the moment?), sell Aussie assets (cap rates are unbelievable at the moment in retail property so you will get some good cash out of this option but at a strategic loss) or postpone the project. Option 3 is the usually the one that is taken. The flow on is that builders are not getting the big projects, subbies are not getting the building works etc. So Wayne I certainly think that the liquidity issues will have further crappy outcomes in the next 6 months.  Then it should start to turn around again around.  

But raw materials are booming due to India and China etc. But I am sure we are all well versed in this US vs Asia geographic segment analysis by now.


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## dhukka (20 October 2007)

Bushman said:


> True. This time around it was industrials like Honeywell not meeting profit forecasts that led the stampede for the exits.
> 
> I must say that liquidity issues are starting to bite in my company as it is difficult to justify retails asset redevelopments when interest rates are +8% and construction budgets are tight. So you are left with three options -equity fund (who is buying into US retail assets at the moment?), sell Aussie assets (cap rates are unbelievable at the moment in retail property so you will get some good cash out of this option but at a strategic loss) or postpone the project. Option 3 is the usually the one that is taken. The flow on is that builders are not getting the big projects, subbies are not getting the building works etc. So Wayne I certainly think that the liquidity issues will have further crappy outcomes in the next 6 months.  Then it should start to turn around again around.
> 
> But raw materials are booming due to India and China etc. But I am sure we are all well versed in this US vs Asia geographic segment analysis by now.




Actually Honeywell's earnings were in line and they raised their *FY07 * forecast. However there are a number of concerns coming out of recent earnings reports that have some investors spooked. Even though most of these reasons have been around for a while the market generally has not appreciated them. 

Anyway I wrote about it here so rather than repeat myself, click on the link if interested.  I especially recommend the interview with Michael Metz at the end of the post for a good summary of the views put forward in the post.


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## wayneL (20 October 2007)

dhukka said:


> Actually Honeywell's earnings were in line and they raised their *FY07 * forecast. However there are a number of concerns coming out of recent earnings reports that have some investors spooked. *Even though most of these reasons have been around for a while the market generally has not appreciated them. *
> 
> Anyway I wrote about it here so rather than repeat myself, click on the link if interested.  I especially recommend the interview with Michael Metz at the end of the post for a good summary of the views put forward in the post.



Good summary dhukka.

Regarding the comment above that I've bolded, It is quite remarkable that this is the case, considering the markets reputation as a discounting mechanism (Something which I have long considered bollocks anyway, and so does this guy). 

But yes agree, sentiment and analysis have become intertwined to spawn "spin".


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## Bushman (20 October 2007)

dhukka said:


> Actually Honeywell's earnings were in line and they raised their *FY07 * forecast. However there are a number of concerns coming out of recent earnings reports that have some investors spooked. Even though most of these reasons have been around for a while the market generally has not appreciated them.
> 
> Anyway I wrote about it here so rather than repeat myself, click on the link if interested.  I especially recommend the interview with Michael Metz at the end of the post for a good summary of the views put forward in the post.




Cheers Dhukka. Good blog entry. My apologies about the Honeywell slip up. Think I was still in shock by the whopping big red 2.5% on my screen this morning and did not take all the facts in. 

I cannot believe that US analysts did not see the shorter term erosion of profits coming up? It is a no brainer that there will have been some erosion of margin this last quarter. The unkown is how long and how severe the down turn will be. My thinking still is that the Fed has the resolve to save the day in the short term - the 'not on my watch' syndrome is alive and well the there will be some political pressure given an election is around the corner. But once again that takes a chunk out of the value of the USD. All I know is that the house of cards is great news for POG and my fledgling WA gold miners.

Interesting that Honeywell are showing growth prospects in coal. Do not follow Honeywell so not 100% sure but this is assumingly coking coal?


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## dhukka (20 October 2007)

wayneL said:


> Good summary dhukka.
> 
> Regarding the comment above that I've bolded, It is quite remarkable that this is the case, considering the markets reputation as a discounting mechanism (Something which I have long considered bollocks anyway, and so does this guy).
> 
> But yes agree, sentiment and analysis have become intertwined to spawn "spin".




Wayne I agree that the "market as a discounting mechanism" argument is largely bollocks. History has shown that the market often fails to discount recessions and corporate earnings cycle changes until we are in the midst of them. That is exactly what happened last time around in the US. 

I've been posting here and on my own blog for at least 6 months that US housing will continue to deteriorate, that corporate profits and corporate profit margins have peaked and will revert back to historical levels, that employment will slow and that the US consumer will run out of ways (now that MEW's are not an option and credit cards will soon be maxed out) to keep spending and will eventually drag the US economy into recession in 2008. 

I have seen nothing over the past few months that would change that view. In fact it is all falling into place pretty much on cue. As for the stock market, I would not be surprised if it rallied into the new year on the back of more Fed cuts, which while they are largely irrelevant from a fundamental standpoint, as you acknowledge have a significant impact on sentiment


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## dhukka (20 October 2007)

Bushman said:


> Cheers Dhukka. Good blog entry. My apologies about the Honeywell slip up. Think I was still in shock by the whopping big red 2.5% on my screen this morning and did not take all the facts in.
> 
> I cannot believe that US analysts did not see the shorter term erosion of profits coming up? It is a no brainer that there will have been some erosion of margin this last quarter. The unkown is how long and how severe the down turn will be. My thinking still is that the Fed has the resolve to save the day in the short term - the 'not on my watch' syndrome is alive and well the there will be some political pressure given an election is around the corner. But once again that takes a chunk out of the value of the USD. All I know is that the house of cards is great news for POG and my fledgling WA gold miners.
> 
> Interesting that Honeywell are showing growth prospects in coal. Do not follow Honeywell so not 100% sure but this is assumingly coking coal?




Bushman,

I'm not an expert on Honeywell, the main thing I took out of their results was the pinch on margins - particularly in their transport business. Weakness in transport companies is always a harbinger of a slowing economy. Also there seems to be some weakness in their businesses exposed to commercial real estate, that was echoed by Caterpillar in their results.

A strong Commercial real estate market has been one of the main arguments by the bull camp pointing to a robust US economy.  It, along with consumer spending will be last shoes to drop if/when the US economy goes into recession and as we know from past cycles commercial real estate lags residential. 

Analysts knew that financial earnings were going to be ugly this quarter although some were worse than expected e.g. Wachovia yesterday. 

I don't think they expected it from the likes of CAT. The problem with earnings forecasts is not so much what analysts expected this quarter but what they are expecting further out. At the moment consensus is for double digit profit growth in 2008. 

For that to occur you have to have a fairly optimistic view of the US economy into 2008 and believe that the credit market turmoil and their impact on financials is a one quarter affair. I think Citigroup's report on Tuesday signalled quite clearly that credit market problems will continue to take their toll for at least a few more quarters. 

The market may not look expensive based on forward looking earnings estimates but when those estimates are based on historically high margin assumptions which history tells us are unsustainable you are on shaky ground. 


I think the belief that the Fed can save the day is a false one. Remember that the Fed aggressively cut rates from early 2002 into 2003 taking interest rates down to 1% whilst the S&P retraced more than *37%*. 

The Fed is largely irrelevant and here is why. What the Fed does from here will be too little too late.


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## sassa (20 October 2007)

wayneL said:


> I think there could be more to this than Oct 20 psychology. There is more crappy news coming from the credit markets.
> 
> Then again, it could all be shrugged off like last time. I think early next week could be pivotal.




And come to think of it-as Sir Humphrey Appleby said in Yes Minister,"We'll have to start a war to take the people's minds off it."Is there anything new going on that the Americans can get stuck into to divert attention from the problems unfolding over there?


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## Mofra (20 October 2007)

sassa said:


> Is there anything new going on that the Americans can get stuck into to divert attention from the problems unfolding over there?



*cough* Iran *cough*


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## wayneL (20 October 2007)

Mofra said:


> *cough* Iran *cough*




I wonder if they could do that without having to turn Iran into a flat, glassy wasteland? Surely the Chinese/Russians would arc up as well?

Maybe an easier target. Syria?

Absolutely no idea, just guessing.


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## jtb (20 October 2007)

mick2006 said:


> I don't know about some of you guys, but over the last week or so I have been taking the chance to clear most of my positions and head back to the safety of cash, now standing at around 95%.
> 
> I recently got the feeling that the market was feeling toppy and due for another correction and judging by the action in the US overnight I might have got very lucky.
> 
> While the rampant speculation in the spec mining sector has created enormous wealth over the last couple of years (myself included)




Wow Mick you must be loaded.

All those MWE and FNT you were buying up until yesterday are only 5% of your portfolio

I'm still 70% in - just Fe and Oil and though.

I'm with INORE on this one - the big boys are spending billions and the europeans, chinese and japanese are only too willing help.

I expect another bath on Monday but refuse to shrink my frame of reference to the American market.

Best of luck all


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## roland (20 October 2007)

Well Friday on the anniversary of the '87 crash sent US stocks down 336 points, or 2.6% down was expected, in fact the expectation, in my opinion, was the catalyst, well presents that emotion plays more a role in the market than fact.

One wonders how sub prime in the US affects BHP selling iron ore to China. How an anniversary of a historical crash 20 years ago is even relevant....

Well, it is -the stock market is an emotional place. People have their entire fortunes, wishes, hopes and expectations tied up in a tick up, or a tick down.

The stock market, not less than 10 years ago was dominated by professional traders, banks, financial institutions and high-end rollers. Nowadays private investors have an increasing impact on market volatility.

The emotional impact of private investors create larger swings in the market, and in my opinion, greater opportunities for people like us.

Use the emotional swings to your advantage, use the forums here on ASF to get valued feedback on company value, do your own research and other research to get a picture on real value on your investments.

If the share price of your oil stocks crash lower, does it change the fact that the oil price is rising, your company is still pulling the same amount of oil out of the ground and getting more for it????

Get real guys, treat these dips/crashes as an opportunity to get you holdings even cheaper than before.

If you have done your research and decided to buy at a certain price, then anything below that entry price should be treated like a gift - go for it.

I take a position and hope like hell the stock price goes up. If it does then wow - I sell and I am a winner!!!! If the price goes down, great - I can get more at a cheaper price - I am a winner again!!!

The stock market is a great place - up or down!!!


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## Smurf1976 (20 October 2007)

sassa said:


> And come to think of it-as Sir Humphrey Appleby said in Yes Minister,"We'll have to start a war to take the people's minds off it."Is there anything new going on that the Americans can get stuck into to divert attention from the problems unfolding over there?



A terrorist attack would sure divert attention just as it did last time.

And as with last time, it would most likely come _after_ the market falls and not before. 

Also just like last time it would provide the perfect excuse to drop interest rates and inflate, inflate and inflate some more.


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## ta2693 (20 October 2007)

I will take advantage of Monday's opportunity and buy more gold and oil and wow.


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## mick2006 (21 October 2007)

jtb said:


> Wow Mick you must be loaded.
> 
> All those MWE and FNT you were buying up until yesterday are only 5% of your portfolio
> 
> Best of luck all




I can't complain with the recent surge in oil/iron ore stocks my net portfolio is now around $4.5 million.

With recent trades adding significant value, such as UMC,CVI,CVN,CIG,TLM,CUL,MHL,LML,RAU

My portfolio currently consists of

CBA 2000 shares (average buy price of $8.94)
WOW 4000 shares (average buy price of $4.50)
MWE 100,000 shares (average buy price of 25c)
FNT 100,000 shares (average buy price of 16c)

Cash $4.25 million (netbank online saver)


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## vishalt (21 October 2007)

woah nice Mick lol. 

I'll just remind you guys that the Dow has rallied an impressive 3627 points since June last year, in a sustained uptrend thats gone over a year (with the exception to the February China shock). 

October is historically a bad month, US corporate profits have been average but overall growing BUT predicted to be double-digits next quarter. 

I continue to hold my assets (NAB/Rio/PetroChina) in low gearing with short-term short positions just to make some money on the downtime, but I'm confident that Wall St will thunder ahead to records again from Christmas or the 1st few months of next year, if anything the market needs a period of consolidation after these ridiculously huge gains we've seen. 

The All Ords has gone from 4800-6800, CRAZY!


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## mick2006 (21 October 2007)

will be a very interesting morning tomorrow, with plenty of cash already sitting on the sidelines, I wonder how many people will start putting it to work tomorrow morning.

who thinks this will be a short sharp correction or a longer drawn out process?


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## nizar (21 October 2007)

greggy said:


> also put some of my cash into a managed fund (Aussie large caps) during September.
> There is nothing wrong with taking some profits off the table.  Our market has certainly performed strongly of late and a pullback may lead to several market opportunites.
> DYOR




Hi Greg,

Just wondering why you would put money into a managed funds that holds Aussie Large caps if you think there may be a pullback??

Large caps get smashed during corrections and this is what leads to the index moving lower. But im sure you know that?

Is it because you can't find opportunities so you will give you cash to a professional who maybe can?

(If it was an emerging companies fund fair enough, But large caps!!)

Any other reason?

Just curious.

Thanks.


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## nizar (21 October 2007)

mick2006 said:


> I can't complain with the recent surge in oil/iron ore stocks my net portfolio is now around $4.5 million.
> 
> With recent trades adding significant value, such as UMC,CVI,CVN,CIG,TLM,CUL,MHL,LML,RAU
> 
> ...




Well done brother.
You've done very well for yourself clearly.
Finally, somebody who can give YT a good run lol 

You actively trade some stocks but have a core holding of solid bluechips it seems. You're getting almost 30% yield from your CBA holding. I like.


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## mick2006 (21 October 2007)

Well done brother.
You've done very well for yourself clearly.
Finally, somebody who can give YT a good run lol 


thanks Nizar, just goes to show there is more than one way to make money in this market. 

YT is the master of picking small undervalued mining plays that have for some reason been overlooked.

Where over the last 12-18 months I have become more of a momentum based trader, picking up on the current trends early, researching all the possible companies in that sector and putting my money to work, and the most important thing taking profits when you get the feeling the momentum is due to change.

The scary thing is I have left plenty of profits on the table by getting out a little early, also I was slow to put my money back in after the august correction.

Also this years tax bill will be a real killer, even though I have set up my own company to trade shares.  

Could I interest anybody in investing in Polycorp International


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## greggy (22 October 2007)

nizar said:


> Hi Greg,
> 
> Just wondering why you would put money into a managed funds that holds Aussie Large caps if you think there may be a pullback??
> 
> ...



Hi Nizar,

Thanks for your question.  I've become cashed up of late and now only hold one share.  I recently invested $25,000 into 452 Capital's Australian Share Fund as Peter Morgan has an excellent track record as a stock picker. From memory, he managed something like 2/3s of Perpetual's Industrial Share Fund from 1994 to 2002 with good success.  His team looks for value stocks amongst Australia's leading companies.  
IMO a good "value style" manager tends to outperform when things get tough. IMO its important to still have exposure to the market as I don't want to be caught out should it take off again. I don't normally invest with fund managers, but having assessed Morgan's record, I decided to invest some money for the long term.  The market looks expensive at present, but long term I'm not worried at all.
If this turns out to be nasty correction, the spec end is likely to be hit much  harder than the rest of the market.  I also worry about the potential impact in relation to liquidity in regards to the smaller end.
These thoughts are mine only and I strongly suggest anyone interested in investing in managed funds consult a financial adviser. 
DYOR


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## greenfs (22 October 2007)

I too have today completed the progressive liquidation of >50% of my portfolio value back into cash. Still holding in % terms reasonably large exposures to BHP, AED & OXR for the obvious taxation reasons.


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## jtb (22 October 2007)

mick2006 said:


> I can't complain with the recent surge in oil/iron ore stocks my net portfolio is now around $4.5 million.
> 
> With recent trades adding significant value, such as UMC,CVI,CVN,CIG,TLM,CUL,MHL,LML,RAU
> 
> ...




Hooly dooly, nice cash balance
Kudo's bro'


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## brilliantmichael (22 October 2007)

Would you like _us_ to move back to cash?


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## mick2006 (22 October 2007)

brilliantmichael said:


> Would you like _us_ to move back to cash?




not suggesting anyone should move back to cash, more pointing out the fact that alot of big fund managers are starting to move to a more neutral position with larger portfolio cash weighting.

I never have less than 15% cash and in times of uncertainty like now will move to between 85%-95% cash.

If you are a longer term investor times like this don't matter, but for shorter/momentum traders as myself, now is the time to be on the sidelines awaiting the next up leg.


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