Cash is not king

WHEN CASH IS NOT KING
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a) The latest $600 billion Fed Intervention is yet another proof that in this environment cash is all but king.

Three weeks ago I forecasted that further significant intervention from the fed would increase inflation
proof asset like precious metals and this is exactly what happened. While Bernake recently confirmed the US commitment to keep "inflation low and stable" I feel that it difficult to happen in an environment where commodities indexes are now at a two years high (and several commodities like Oil at at a two year high too).

It is always difficult to buy in a bullish market but famous fund managers like Mobius of Templeton believe that current intervention will just push commodities "higher and higher".

Recent US Data like the payrolls of last friday are a positive sign of economic recovery and therefore positive for commodities too.

b) U.S. Banks might soon boost dividends. The Fed is apparently working on new guidelines for supervisors that will then allow banks to increase dividends in 2011 as much as doubling it (Wells Fargo) or even quadruple it ( JP Morgan). This is a good opportunity for investors. Insurance and Re-insurance (e.g. Swiss Re that will be repaying its debt with Warren Buffett sooner) companies have also been depressed for some time so are another value area to look at.

c) As we are approaching the end of the year I think it has now become clear that a double dip risk is very low and that the Federal Reserver will do whatever it takes to enhance growth. In this environment cash and bonds can provide with little benefits and I maintain that exposure to a broad basket of commodities and traditional shares (Food & Beverages, Iconic Brands in the Luxury Sector, Personal Goods and household products) will be a much more effective protective strategy against inflation. U.S. banks and international insurance groups are also interesting.

In Short:

- The recent Fed intervention provided with yet another boost to stocks and commodities now at a two year high. In this environment cash holders, especially USD vs CHF, have lost. For this reason I don't think that in a possibly pre-inflationary environment cash is king. Commodities and precious metals like Silver and Palladium combined with traditional consumers equities provide with a better protection;

- Value to be found in U.S. banks that might boost dividends in 2011 and some of the strong international Insurance and Re-Insurance players (like Swiss RE) that have been depressed from some times but are now getting back to positively surprising results.