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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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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