Strategist McDonald recommends 'highest cash position since 2007'

According to strategist Larry McDonald, investors ought to put more of their hard-earned cash in, well, cash.

It's not that he is impressed by the yields that cash-like instruments earn in the current environment. McDonald, formerly with Societe Generale and Lehman Brothers and currently with ACG Analytics, is bearish on bonds as well as stocks, making cash attractive due to process of elimination.

"You've got trillions that's coming over [to U.S. markets] searching for yield, and this is all going to unwind," McDonald predicted Tuesday on CNBC's "Trading Nation," pointing out that investors in Europe and Japan are facing even lower domestic yields than U.S. investors.

McDonald is frequently bearish on stocks, but he has recently added bond bearishness to his ursine mix, due to his belief that the yield trade has become "one of the most crowded trades we've ever seen."

And this, in turn, leaves McDonald at "our highest recommended cash position since 2007."

He doesn't want to keep money in cash forever, but recommends waiting until "you get that big 10 to 15 percent drop — that's when you should put money to work."

David Seaburg, head of equity sales trading at Cowen & Company, responded that "I'm not a fan of going into cash, and I don't think you rotate 100 percent into cash ever."

Still, even the typically bullish Seaburg said he does think "positioning has gotten out of whack in a lot of these yielding names. There's no question money has been racing in there hand over fist. ... It is absolutely irrational, the money that has been pouring into yield-type equities."

"I think you take some off the table," he concluded on "Trading Nation."

Still, he says that rather than cash, he would favor underperforming stocks, such as financials and biotech names.


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Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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