Seth Klarman, Cash, and Risk

Illusion never changed
Into something real
I'm wide awake and I can see 
The perfect sky is torn
--Natalie Imbruglia

More thoughts from Seth Klarman's recent letter. You can tell that he is feeling the red-line right now. It is also clear that he anticipates major downside in stocks. He notes:

"When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals...is the riskiest environment of all."

He appears to be holding large cash balances in order to take advantage of lower prices. He notes how stupid one can look for holding cash when it's earning nothing.

This continues to be a most difficult decision for me. How much cash to hold? As Seth notes, cash provides flexibility. It is necessary to have cash on hand at market bottoms, as few people have cash to purchase bargains at this point.

On the other hand, policymakers are doing everything they can to debase the value of cash. Spending dollars now before prices rise, or converting them into other assets capable of preserving purchasing power seems prudent.

Such binary scenarios are products of financial oppression.

position in SPX