David Rosenberg: Why having a big chunk of cash on hand is a good idea in this market

There is no other central bank as openly committed to policy easing as much as the Fed, and no other central bank boosting the monetary aggregates at nearly the same pace — a pace that makes a mockery of what we saw in the 1970s. The difference now is this extremely wide deflationary output gap — as wide now as it was at the depths of the Great Recession in late 2008.

Gundlach pulled no punches when he said he has zero interest in playing the U.S. stock market at current inflated levels — like us, he is finding greater GARP-like opportunities across the Pacific . He did note that he is not convinced that there will be money to be made in long bonds, but wants a hedge against deflation winning over inflation. And, all of a sudden, insurance against inflation isn’t so cheap anymore — there isn’t a lot more room in that trade.

Oh, and the cash? Dry powder for when the eventual correction comes. Corrections are part of the market landscape and I will guarantee you that one is coming. It’s just a matter of when. And when you hear the refrain “buy the dip,” here’s the reality: You can only buy that dip if you have some dry powder on hand, unless you want to sell other assets or leverage up.

Is $5 enough?

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