From Charlie Morris – Fleet Street Letter (Great Britain) –
Over this past week, global investors have dumped the pound. That serves as a useful reminder of the dangers of holding cash. British savers have lost a bite out of their purchasing power this year. No more holidays to the USA (or dollar-pegged countries such as Hong Kong or Saudi Arabia). Those invested in assets have fared better than those with cash in the bank. 2016 has been full of surprises and assets have beaten cash, just as they normally do.
But not always. It can make sense to hold cash when equities are over-hyped and at risk of a fall. I don’t see that in the big picture, but following the recent rally it makes sense to take something off the table. After all, the pound is cheap and is therefore a buy. If you sell stocks for pounds, you are making two decisions. One is to exit a stock, and the other is to buy the pound. I like the idea of buying cheap pounds, and funding the switch with stocks that have rallied. However, we won’t go too far with this. As I said, I don’t see UK equities as particularly over-hyped and I’ll show you why.