Tuesday, October 06, 2009

"Cash On The Sidelines" Anti Spin

This quote from James Bianco sums it up ( when it comes to stocks )..... More "Anti Spin" on this topic from Barry Ritholtz, Hussman & Tim Bond

Der nachfolgende Satz von James Bianco trifft es hervorragend ( zumindest wenn es im Hinblick auf Aktien gemacht wird ) .......Mehr "Anti Spin" zu diesem Thema von Barry Ritholtz, Hussman & Tim Bond

“Any time you hear a money manager say there’s $3.5 trillion dollars in cash on the sidelines, take your money away from them. Because he doesn’t know what he’s saying.”

bigger / vergrößerte Version H/T Barry Ritholtz

Will “Cash-on-the-Sidelines” Really Drive Stocks? MarketBeat WSJ
The “cash-on-the-sidelines” argument many market-watchers make to explain why stocks should move still higher shows no signs of losing traction.

MarketBeat: Jim, thanks for taking a few minutes to talk. You recently wrote a research piece saying the assets in money-market mutual funds won’t be moving into stocks anytime soon. How come?

Bianco: If you look at the mutual-fund flows there is a record amount going into bond funds. Forty-two billion dollars went into bond funds in August, which is an all-time monthly record. In fact, the all-time monthly record, I believe, for stock funds was $55 billion back in February of 2000. So it’s pretty close to the stock-fund record. But when you break it down, what you’ll find is that short-term muni funds, and short-term corporate funds, those are the funds that are getting huge, huge inflows.
17216.jpg - 4wk moving avg inflows US bond mutal funds - Bar Cap
The short-term corporate funds are up 12% this year. And as we talk right now, the S&P 500 is up around 16% this year and the Dow is up about 11% this year. That’s including dividends. So my conclusion was, “Yes, there’s a lot of money that’s built up in the cash on the sidelines. Yes, it is going to come out of that zero interest rate funds. And its going into short-term bond funds, which by the way are performing pretty much in line with the stock market. So don’t hold your breath. You’re going to be waiting a long time before you see that money ever matriculate into the stock market.”

MarketBeat: What about the cash-on-the-sidelines argument more broadly. Do you have problems with the fundamental logic of it?

Bianco: Now a couple things about that. The first one is I hate when they say, “There’s $3.5 trillion on the sidelines and that’s a whole lot of money.” It implies that all of that money should be put in investments like the stock market. That’s not true. The vast, vast majority is in transactional balances.

MarketBeat: What does that mean exactly?

Bianco: It’s money that is going to be needed in a very short period of time, like, within a year. It’s going to be spent on something. They’re almost like checking accounts, if you want to think of it that way. It’s like somebody saying, “You’ve got $10,000 dollars in your checking account, why don’t you $10,000 worth of stocks?” And the answer is, “Well because I’ve got to pay my credit card bill and my rent.”

Maybe $1,500, $2,000 or $1,000 of it, I might be able to peel out and put into an investment. But I can’t put the whole $10,000 into it.

MarketBeat: So who owns all this money in money-market funds?

Bianco: The way people say “$3.5 trillion in money-market funds,” they make it sound like $3.5 trillion of widows and orphans are out there irrationally taking a zero-percent return and not recognizing that they should be plowing their money into the stock market.

Well, first of all 65-70% of the money isn’t widows and orphans. It’s institutional money, and the majority of it is transactional balances. So once you stripped all of that out, how much retail money is hiding away from the stock market? The answer is, it’s not very much. It’s probably in the range of a couple of hundred billion dollars.

So there’s a few hundred billion dollars — not $3.5 trillion — that could potentially move back into a longer term investment. My argument is that most of it is already moving. It is moving into short-term bond funds. And those short term bond funds have performed in line with the stock market.

So, what you would need is a massive divergence of those short-term bond funds underperforming — with the stock market not going down — in order to start pushing people out the risk curve even more and into stocks.

So when people say, “Look at all this money. it’s an all-time high in money market funds. And these people are stupid for being in money funds.” Well, money funds have outperformed the stock market for the last 12 years. So shouldn’t money funds have a lot of assets relative to stocks right now? Because we all know that everybody chases performance. So the fact of the matter is there should be a lot of money there because stocks have not performed well. The high-falutin’ technical term for that is “stocks have sucked.”

“Well, they’ve been outperforming cash since March,” would be the argument. Yes, but not over the last two years. People do remember what the stock market did to them last year.

MarketBeat: So, in short you don’t buy the cash-on-the-sidelines argument.

Bianco: No. You know I started in this business in 1986 and there was a ton of cash on the sidelines. And every single day since 1986 everybody has told me that there’s large amounts of cash on the sidelines.

MarketBeat: What do you mean?

Bianco: That’s been a constant argument that’s never gone away. There’s never been a point where anybody has argued that there’s been too little cash on the sidelines. That’s just background noise is all that argument is. Especially when somebody says there’s $3.5 trillion on the sidelines. I was kidding around with some guys in the office here and said, “Any time you hear a money manager say there’s $3.5 trillion dollars in cash on the sidelines, take your money away from them. Because he doesn’t know what he’s saying.”

Equity managers want you to believe that in reality there should be no such thing as a money-market fund. And they should all be closed down and all that money should be put into the stock market.

UPDATE: Quote Rosenberg

"Another way to look at the situation is that when you hear and read about "liquidity" driving the market, it is usually a catch-all phrase for "we have no clue" but it sounds good. "
News from 1930 Daily summary based upon my reading of the Wall Street Journal from the corresponding day in 1930

There's a large amount of money on sidelines waiting for investment opportunities; this should be felt in market when “cheerful sentiment is more firmly intrenched.”
Sounds familar.....? ;-)

Kommt Euch das irgendwie bekannt vor...... ? ;-)

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