A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Bernie, I was thinking about recent comments in BARRONS and on CNBC about being very near the top of the bond cycle. I took a serious look at the cash reserves I have set aside for my income producing assets. In some cases they are right where I want them to be for the comming slide in NAV and share price that will start when interest rates climb. A couple are a bit 'thin' on cash.

So, on those that are lower in cash than I'd like, do I sell some now to get them back into balance (cutting into monthly income) to be adequately prepared? Or do I ride with what I have? One thought is that if we ever get this Bear back into hibernation, AIM should start spitting out cash like mad some time in the future. Therefore cash from other sources should be available later on.

I hate counting chickens before they hatch. Rising interest rates don't make for great stock markets usually. We're in a peculiar situation with ST rates low and the market in very bad shape. LT rates are down from a year and two years ago, but only about 1% different.

So, if the FED's next move is going to be to raise interest rates, then where's our stock rally going to go? Any rally is going to have to be earnings driven. Nobody's going to forgive rising stock prices unless there's some substance to earnings. The sum of P/E + Interest rates isn't going on vacation this time. We're still going to see Relative Valuation capping the up-side of the market.

This brings me back to the idea of selling enough to fully fund the reserves for my income producers now. I'd have to make Portfolio Control adjustments in those holdings to keep the trade range the same. This would be similar to "removing" money from the account, but in actuality I'd be taking it only from the Equity side and moving it to the Cash side.

I've been procrastinating on this subject for a while. Since the interest rate cycle is a long one, there's been no urgency in making a decision. This week's "FED Watch" shenanagans got me thinking more seriously about it again.

The Boy Scout Motto says "Be Prepared." That's worked very well for me over the years and is part of the AIM philosophy even if not stated as such. My current feeling is to take a short term cut in current income to be prepared to buy at excellent prices some time in the future.

Your thoughts?

Best regards, Tom