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Jacob Sonenshine: With stock and bond prices way up and recession risk rising. What is an investor to do? We have Steve Sosnick, Chief Strategists at Interactive Brokers. Is it unreasonable to go to all cash now?

Steve Sosnick: No. Presumably, if you've been in the market, you've had great returns, whether it's stocks or bonds. Volatility is increasing, which, which sort of begs the question, unless you have a real conviction, perhaps you may want the option of being in cash that you want to deploy later. If you think there's better value out there. Markets are more volatile right now. Warren Buffet has said that basically having cash in a portfolio is good as having call options. If the price of your call options are going up, wouldn't you want to own the option to be able to buy things when you see prices more favorable or situations a bit more clarified?

Jacob Sonenshine: So for a lot of people started doing that and the S&P 500 comes down, then you have trade. We're waiting for the dust to settle on. We have earnings, uh, waiting for that to end. When would you go back into the S&P 500?

Steve Sosnick: I mean the market never rings in all clear but I would say if you're taking your money out of markets and putting them in cash because you still don't see a lot of clarity when you start to believe that there's an investment thesis, that's more investible favorably for yourself i.e. bonds are yielding more money or stocks have fallen to a point where you feel that the more attractive value.

Jacob Sonenshine: I know that you're not, you don't have a crystal ball, but you have a trade issue that's percolated recently. S&P 500 back up 18% year to date. What's a range of times where you could see the S&P 500 drop again and how does an investor protect themselves?

Steve Sosnick: Well, a few things. You know, we're up 18% year to date, but that's also because we were down so much last year. So you know, realistically that's taking a snapshot at a very favorable time in terms of marketing to market. If you want to go back over the last couple of years, stocks have essentially churned. You know, there've been certain great winters, but for the most part the S&P, you know, is up marginally over a two year, over a two year period with a lot of volatility intervening. So what you'd want to look for is what is going to clarify this situation right now I'm not in love with the fact that you have ongoing trade battles and you have the president basically on one hand touting the strong economy and at the same time trying to job on the dollar and lower and the Fed into action.

Steve Sosnick: Those don't necessarily go together, right? If you've got the world's strongest economy and you can argue that by some, or you know, by certain measures we do, whether it's ice, whether it's China, if you can believe those numbers. Arguably we have a solid economy growing at a good rate as opposed to most other currencies and countries. Why would you not want to own the currency that that of the current of the country that's doing well and so yes we have higher interest rates but there's a reason for that and there's an interest rate advantage so you want .. I think you want some clarity. Now I'm not optimistic that a full trade deal gets done anytime soon but I'd like to at least see the the job boning get a bit get come down a bit.

Steve Sosnick: The other thing I would want to see is what is the Fed really doing? I think the market got ahead of itself at the last fed meetings sort of, you know saying, okay, 25 is priced in but maybe we'll get 50 or maybe they'll say that we're going to keep cutting and guess what they they didn't. They basically said, here's your 25 basis points. We're going to go back to watching. We're going to go back to watching things. What you have now is a paradoxical situation. People are very excited about the Fed, potentially cutting rates. We have resumed pricing in interest rates, interest rate cuts over the next few fed meetings. But to what end is the economy that bad? Is the inverted yield curve telling you that the economy stinks that much? Well, the economy stinks. Do you want to be in stocks?

Steve Sosnick: So there's a lot of things rolling around that that are paradoxical or, or, or counterintuitive all at the same time. I would like to see some of that stuff clarified. If you're concerned that this market is a bit volatile for you, perhaps you want at least get some of those paradoxes rectified.

Jacob Sonenshine: What's the market's biggest irrational fear?

Steve Sosnick: Fear of missing out. Fomo. And I think you see it again and I think what happens is that's why you see such sharp moves, right? I mean, when the market sell off, it's clear that somebody had to sell over the past couple of days and that happens. There's any number of things that happen. But as you saw the market sort of peter out their normal, they did sort of feel sold out at some point on Wednesday, which is when we started to see futures bounce off the lows and the equity markets move higher.

Steve Sosnick: But the rally we saw on Thursday was basically just, I took that to be FOMO. You know, we were relentlessly moving higher. That was the catalyst initially might've been the German story that, that they're gonna do some fiscal stimulus, but then they more or less squashed that. And we continued to see the futures rise. I think what happens, institutional investors, they have to keep up with their peers and they have to be invested in a rising market. And I think anybody who gets off the train for a little while finds they have to get back on if it starts moving away from them. But that also means that you get a herd behavior and that sort of self reinforces in some strange ways.

Jacob Sonenshine: Thank you, Steve.

Steve Sosnick: My pleasure.

What in the world should an investor do, considering the fact that tariffs and controversial central bank policy remain risks to an already sowing global economy?

The S&P 500, after having briefly dipped to a 12% year-to-date gain on account of Trump's added 10% to 25% tariff threat on Chinese goods, is back up to a roughly 17% gain for 2019.

Meanwhile, the ten year treasury is yielding 1.7%. Bond yields fall when their prices rise. The bond market has priced in more than the 25 basis point rate cut made in July. Now, investors are rushing into treasuries, as the tariffs threaten to further destabilize global economic growth.

Here are a few words of advice from Interactive Brokers' chief strategist and head trader, Steve Sosnick. 

Go to Cash For the Near-Term

"Presumably, if you've been in the market, you've had great returns, whether it's stocks or bonds," Sosnick said. "Volatility is increasing, which sort of begs the question, unless you have a real conviction, perhaps you may want the option of being in cash that you want to deploy later." 

Sosnick added, "Warren Buffet has said that basically owning cash in a portfolio is as good as having call options," Sosnick said. "If the price of your call options are going up, wouldn't you want to own the option to be able to buy things when you see prices more favorable or, or situations a bit more clarified?"

Stay Exposed to Stronger Economies

"If you've got the world's strongest economy and you can argue that by certain measures we do {U.S. does}, whether it's us, whether it's China, if you can believe those numbers, arguably we have a solid economy growing at a good rate, as opposed to most other currencies and countries. Why would you, why would you not want to own the currency that is of the country that's doing well," Sosnick said. "And so yes, we have higher interest rates, but there's a reason for that and there's an interest rate advantage." 

Know the Broader Market Dynamic

"Fear of missing out" has driven U.S. stocks back up to levels close to those of late July, Sosnick said. 

"FOMO. And I think what happens is, that's why you see such sharp moves. When the market sells off, it's, it's clear that somebody had to sell or over the past couple of days and that happens. There's any number of things that happen. But as you saw the market sort of peter out to normal, they did sort of feel sold out at some point on Wednesday, which is when we started to see futures bounce off the lows and the equity markets move higher."

For Sosnick's entire approach, watch the video above. 

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