No. of Recommendations: 34
The cash level is massive. Period. The question is WHY? Bearish signal or elephant?
I presume it's a mix of reasons.
But there are three obvious ones to consider.
* The boss is not 100% happy with the forward prospects of the big holdings he has been selling, at least not at recent prices. I include in this the presumably minor explanation of possibly higher capital gains taxes in future: that can't be a consideration unless you're thinking of selling anyway.
* He figures something else will come along soon enough to make dry powder not such a bad gamble, especially given that there is for now a modest positive real yield on the T-bills.
* The company is just really really big now.
The scale and particulars of the first two reasons are anybody's guess.
The last one is the only one we can assess, but it's pretty compelling as a significant part of the explanation.
e.g., consider that the cash isn't cash, it's T-bills. Either way, it's really just the shortest end of the fixed income spectrum. [Cash + fixed income] is at 53% of investments, a big number. But for a sense of scale, average 2001-2010 of the same metric was 56%, about the same.
Looked at the other way, even after the recent sales, equities are still 47% of investments. The average in that old stretch was 36%.
Bottom line: the equity allocation isn't unusual. The cash+fixed allocation isn't unusual. The only thing that's different is that the cash+fixed has moved to a very short average duration. One reason for that is that real bond yields aren't what they once were, so it's not attractive to hold them. Plus, some unknown mix of the top two reasons above: less than comfortable with those holdings, and/or figuring another streetcar will come along soon enough.
Jim
