Fund Manager: Cash is King in Volatile Markets

With energy and food prices hitting record highs and house prices nearing record lows worldwide, where can investors find safety?

Jason Forde, fund manager at Kepler Landsbanki, thinks cash may be a better bet right now than stocks.

"For the rest of the year, we anticipate a volatile but generally downward moving trend (for equities)," Forde told CNBC Europe.

Forde's company has factored in a rate hike from the European Central Bank for July and again later in the year, possibly in November.

But he said that in early 2009 there will be a short, sharp reversal of the interest rate rises, where by the second quarter, the ECB and Federal Reserve will cut rates aggressively.

"In that sort of environment, we find it very difficult to see visibility at a stock level. So we're raising cash and we think that equities will continue to underperform."

Forde expects the inflation picture to reach a crescendo around the third quarter of this year, adding that it will shock a lot of people.

This leap in inflation will then be trimmed in the first and second quarter of 2009 following a downturn in global growth, predicts Forde.

When asked to give suggestions on what to do with this economic outlook, Forde told "Power Lunch Europe": "Cash is always a friendly asset to hold in times of trouble. We think you can continue to play the basic resource story. That will continue higher even as the broader markets decline into the third and fourth quarter of this year."

Forde expects the basic resource boom to continue until November as investors pull out of equities and jump on the band wagon.

He foresees oil to flirt with the $150-a-barrel level but not to break it this year.

"We anticipate a fairly rapid decline below $100 towards the end of the year as the markets factor in that the first two quarters of '09 will be very slow and so we anticipate that maybe in the first quarter of '09 we could be trading as low as $89 or $90. But until then, there's a real risk of a second spike up but not above $150."