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Too much cash, too few good stocks to invest in

Cash is king again, and that's a big problem.

The only thing I'm sure of in this market is my negative sentiment — it has crystallized.

Right now I feel like we can explain why the markets are a mess, and we can complain about it, but here's the really painful part.

After all the explaining and complaining, I don't really see what — at least in the short term — we can do about the slowing economy and outlook for stocks.

Simply put: My biggest problem right now is that I have more cash in client accounts than I have investable ideas.

Dollars cash
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The number of companies that are disappointing on revenue, combined with the strong dollar and slowing economies around the globe, will push companies to pursue a shrink-to-grow strategy — cut costs, buy back stock and, basically, hunker down in survival mode.

I jumped on some household-name consumer-driven stocks during the recent market drop, and the pop in some of these stocks was a pleasant shocker. But other than relying on stocks going up nearly 20 percent after they report earnings, accelerating revenue growth is the most prized trait in this market. And outside of a handful of companies, it's hard to come by. I mean, how much Facebook and Alphabet can you stuff into a portfolio without risking over-concentration?

(Over-concentration fits right into the kind of mistakes people make in unusual circumstances.)

So many of the stocks that are down won't be getting back up anytime soon. Remember the dot-com bust? Investors kept calling a bottom in WorldCom, Lucent, Nortel, Alcatel — even in Cisco, Intel, Microsoft and Dell.

The only stock strategy I see as reliable right now is that when reliable stock growers get hit and become more GARP-ish (growth at a reasonable price), I nibble and use predetermined below-the-market buy-limit orders to add on volatility. And I go into these positions with the expectation that I may be wrong for a long time before I am right.

Every day, I go through a self-determined process of setting my own expectations low. That includes the stocks that I expect to work over the long term.

This reminds me of how investors are trying to call the bottom in energy stocks. It takes years for a favored group to shake out all of the "could've, should've, would've sold by now" shareholders. And if stocks were strong performers because of demand via China, they aren't cheap now. They just reflect a decelerating economy in China and the rest of the world.

Value traps abound like I have never seen before.

Even stocks that should be "safe" are facing risks that are not in the usual market playbooks.

Take big pharma. It could be good, too, except that the industry is under attack politically. Big pharma is being treated like tobacco!

Hot consumer brands offer what I consider to be ephemeral growth prospects, and those are more like crowded trades for the more nimble investor as opposed to someone like me who prefers to take a two- to five-year outlook.

Today, you can either hold cash or buy long-dated Treasury bonds to maintain value, which is a win in a deflationary environment. But with Treasury bonds, you run the risk of sacrificing too much income for capital preservation. And with cash, you run the risk of your principal dwindling in retirement.

"Every day, I go through a self-determined process of setting my own expectations low." -Mitch Goldberg, president of ClientFirst Strategy

When I try to think of something that would make me more optimistic about the U.S. economy, I have to think long term and big picture — basically hoping.

We could see greater demand come from millennials as they age and need more goods and services.

And it's possible we could see a massive rebuilding of infrastructure in the U.S. Presidential hopefuls are pushing it. But lots of stars would have to align — it would have to be paid for by issuing debt, something that may face a tough battle in Congress. And even that won't be the jolt that absorbs all of the excess capacity in everything both mined and man-made that exists today across a glutted globe.

Here's one of the more troubling conclusions I've reached about the short-term vs. longer-term outlook, though it will take me three sentences to explain, so bear with me.

1. Financial engineering does nothing to create long-term value for shareholders, and I can say with complete confidence that the majority of money spent on stock buybacks is behind us.

2. A lot of companies that are seeing their stock get pummeled are actually the ones that spent on buybacks. (ExxonMobil, considered a "serial" stock repurchaser, said this week it's slashing its buyback program. Sure, that's specific to the energy sector woes — like ConocoPhillips slashing its dividend on Thursday, something all oil firms are loathe to do — but I see "survival mode" thinking cutting across a much broader swath of companies.)

3. And yet, continued financial engineering is one of only two themes — along with M&A — that I think should push some stocks higher, even if they don't actually create long-term value. M&A can impact sectors more than others, but it isn't a "lift all boats" strategy.

Oh, it's painful all right.

And while everything may be "lower for longer" in the markets — not just oil — investors are overlooking the jump in the cost of health insurance this year. In fact, it is one of the only places that "lower for longer" doesn't apply. For many consumers, the savings from low fuel costs doesn't even come close to the added cost of health insurance.

It's hard to say cash is the only thing worth "investing" in — and I am looking to buy GARP stocks on big moves down. Yet right now it feels like cash is king. And queen and pawn and rook and bishop. And that's a big problem. As an investor, it's debilitating.

— By Mitch Goldberg, president of ClientFirst Strategy
@mitch_goldberg

Read more views from Mitch on the markets and investing here.