Is this a time when not investing is the best strategy?

Looking at the astonishing cash piles in corporate balance sheets, investment funds and even in the bank accounts of wealthy individuals and you could easily conclude that not investing money in anything is the best strategy. It is certainly the most popular.

However, even if you take dollar notes and hide them under your mattress you are still taking a position in an asset class. Might you be better off in a different currency and if so how and when do you make the switch?

Fortunate poor

Only the truly poor are not burdened with the responsibility of investment. That said there are points in time when the uncertainty about the future is so great that the risk of losing cash in many investments strongly outweighs the potential gains.

This is surely where we sit this month. Interest rates and dividends are so low that they are overshadowed by the inflation rate. So many trusted asset classes – from US treasuries to US stock markets – are actually delivering negative real returns.

At the same time with the bond market never higher and yields never lower the bubble in this asset class is obvious. Holders of Greek, Irish, Portuguese and Spanish bonds have all learnt a painful lesson in how sovereign debt can fall in value. By extention other highly-indebted nations will one day soon also have higher interest rates and much lower bond markets.

US stocks have outperformed other global equity markets this year but again beware of going after the horse that has already bolted. Goldman Sachs has global stocks all heading lower as the eurozone crisis comes to its denouement early next year. We think that can will probably not stand the latest kick down the road (click here).

Warren Buffett

The flow of money out of the eurozone and into the US has kept US equities and bond markets stronger than justified by the weakness of the US economic recovery and that will come to a grinding halt with a blow up in the world’s biggest economy which is still the old nations of Europe for all the progress by the New World.

Sometimes it is better as an investor to do nothing. Perhaps somebody should tell that to Warren Buffett. As the ArabianMoney newsletter discusses this month the Saga of Omaha is buying now on the belief that inflation will soon trash cash and central banks do the only thing they can, print money (subscribe here).

Sadly Mr Buffett is not as cosy with the European as the American establishment and he may need to speak up soon, or risk being patient for sometime to see a return on his recent buys. We would rather wait patiently with cash and miss the first 10 per cent of an upturn than catch the next 20 per cent down leg.