The U.S. stock market is near all-time highs, of course, but there's a more troubling flip side to that: U.S. stocks are at nonsensical, nosebleed valuations.
Folks, when a money-losing outfit like Uber Inc. (NASDAQ: UBER) can go out - in broad daylight, in front of everyone - and value itself at $84.2 billion with a totally straight face and no hint of sarcasm or irony...
Well... that tells you something's not right. Something's been broken.
It deserves it for sure, but I'm not just singling Uber out here; it's merely emblematic of this mass insanity. There are hundreds upon hundreds of companies, many of them market leaders, trading at multiples quite divorced from reality. Nothing about the fundamentals justifies the prices being asked.
And like the saying goes, you can't fool all the people all of the time.
As I'm going to show you in a second, savvy investors - the so-called "smart money" - are increasing their cash positions. That's a wise move, because cash won't lose its value the way stocks do, and you can use it for "dry powder" to scoop up bargains when markets slide by double digits.
There's just one problem: The smart money is building up cash, but nowhere near fast enough. Nor are they setting aside enough.
Let me show you what my two-plus decades of experience says is the perfect cash allocation for a market like this...
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Even the Smart Money Doesn't Have This Tool
CNN Business reported last week that Bank of America Corp. (NYSE: BAC) investors are now the most bearish they've been since the 2008 crisis, on edge over the health of the global economy and sliding corporate earnings.
UBS Group AG (NYSE: UBS) reported as well that their clients are holding more cash, roughly 25%, to relieve the stress.
Morgan Stanley, in its 2019 Midyear Strategy Outlook for investors, intimated to its clients that what worked in the first half of 2019 may not pan out in the second half, putting the blame (quite rightly) on the widening gap between U.S. growth and growth elsewhere in the world, as well as between current asset price levels and the underlying fundamentals.
As I said, that's smart... but not smart enough.
We've developed a proprietary tool I call the "Storm Tracker." It measures - in real time - nearly 100 market-leading indicators that are essentially like market "weather patterns." It factors in consensus recession data, yield curve inversions, uncommon trend-tracking criteria, and much more across global stocks, currencies, bonds, and commodities.
Storm Tracker is extremely complex to derive, but it's extremely simple to understand its output. In fact, it's rendered as one single number! The tool essentially measures the distance from "landfall" for the next recession - essential information when it comes to keeping your money safe in the worst market "weather."
I typically reserve Storm Tracker for my free Critical Signals Report subscribers, but I think everyone deserves to know its latest "weather forecast."
Right now, Storm Tracker is reading 45 - a ferocious tempest off our bow. This is up from 42 last week - despite better news in the commodity markets, more easy money assurances from the Fed, and new all-time highs.
All while important leading indicators (that get barely any coverage on cable business networks) fell.
Here's What to Do About This Storm Tracker Reading
Given this new readout, I'm recommending we go to 45% cash, significantly more than what the big bank analysts are saying (significantly safer and smarter, too), but then, since we're not financial advisors, we don't have to keep you invested to get paid.
At the same time, we do want some exposure to the undeniable upside the Fed's about to unleash with its dangerous, ill-advised rate cut at the end of the month.
The pick I'm about to name does just that, yet limits the downside risk that's growing closer every day.
Today I'm recommending the Vanguard Dividend Appreciation ETF (NYSEArca: VIG). It sports a market cap of $37 billion and is extremely liquid. Importantly, VIG should continue to outperform the S&P 500 especially if, as expected, the Fed follows through with its July 31 rate cut.
This Vanguard exchange-traded fund (ETF) tracks the NASDAQ U.S. Dividend Achievers Select Index, which holds mid- and large-cap U.S. stocks (excluding real estate investment trusts) with a documented history of increasing dividends for 10 consecutive years. VIG is great for income and appreciation - and it's been a go-to bet during the current melt-up.
Unprecedented: V3 Recommendation Could Rocket Monday Morning
When you spot this anomaly... and you tap into it in just the right way... it's possible to shear big chunks of cash right off the top of the market. That's because HIDDEN in the trading frenzy is a secret that can let you skim off $15,000... $20,000... even $30,000 a month. And on Monday morning, we're going to release our brand-new recommendation. Before you miss out, get the full story...
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About the Author
25-year run as a hedge fund portfolio manager, family office chief investment officer, managing director and general counsel. Internationally recognized expert in credit and equity markets as well as macro risk management.