Is Alex Gurevich Still Short Cash?

Alex Gurevich, CIO of HonTe Investments, recently wrote a Tumblr post addressing the journey that cash has made as an investment since the Financial Crisis. With the S&P 500 making new all-time highs, some investors are growing leery of the stock market’s lofty valuation.

How 'Safe' Is Cash?

Gurevich pointed out that his belief in sitting out market bubbles rather than trying to trade them may seem to be in line with the idea of rotating to cash. However, he pointed out that this type of thinking is based on the premise that cash is a safe alternative to stocks.

According to Gurevich, cash is unsafe in three ways:

1. Base currency risk
2. Risk relative to benchmark
3. Relative currency underperformance risk compared to other currencies

However, there’s no denying the power of cash under the right circumstances. Gurevich believes the greatest bubble so far in this millennium has been the 2009 cash bubble formed during the Financial Crisis.

“Much of my success in subsequent years was due to recognizing this bubble and following my advice to sit it out,” he wrote. “No, I didn’t go short cash. I just rotated my money out of it into the ‘safe haven’ of stocks.”

Related Link: The Fed's Mixed Feelings On Rate Hikes

'Magical' Trade

First, the Federal Reserve began its assault on cash with its QE programs. Then, other central banks were forced to followed suit. Recognizing this trend, Gurevich began shorting foreign cash between 2010 and 2014, and he described the results of the trade as “magical.”

Now the main question is whether or not it is finally time to close the short cash trade. Gurevich is not yet convinced.

“When I think of cash as an asset (or even as a commodity?) there is practically no limit to how cheap you can get it by producing more and more of it,” he concluded.

So far, Gurevich has reduced his net short exposure to cash, but he maintains his core position.

Thus far this year, the SPDR S&P 500 ETF Trust SPY is up 6.1 percent, while the PowerShares DB US Dollar Index Bullish UUP is down 2.7 percent.

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Disclosure: The author holds no position in the stocks mentioned.