How Much Sidelined Money Remains? 12 comments
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According to Bloomberg.com, many investment managers are becoming optimistic about the future of the market because there is still a ton of cash not yet invested in the market. This money has been termed “cash on the sidelines” because it is really not earning a return, and people have stashed it away for a rainy day. As the bulls theory goes, there are two reasons that this will help drive the market higher. First, economic improvement and a return to growth will make investors less risk averse. At the same time, these cash-heavy portfolios will start allocating those safe assets into more risky investments in order to reap better potential returns.
Saving Money
Investors placed $1.45 trillion in U.S. money-market funds in 2007 and 2008during the worst financial crisis since the Great Depression, based on data from Washington-based ICI. The amount has dropped $439.5 billion since reaching a record $3.92 trillion in the week ended Jan. 14.
A broader measure of reserves that includes cash, bank deposits and money-market funds has climbed to $9.55 trillion this month, based on data compiled by the Fed. That’s enough to buy all of the companies in the S&P 500, which have a combined market value of $9.37 trillion, Bloomberg data show. Since 1999, so-called money at zero maturity has on average accounted for 62 percent of the stock index’s worth.
“There is a wall of cash,” said Yves Carpentier, a Paris- based manager at Cap West, who oversees $118 million in three U.S. stock funds that have gained more than 32 percent this year, beating at least 87 percent of their competitors. “Stocks will be the investment of choice in the coming months.”
…
Stock Inflows
Investors are returning to stocks faster than in the last bull market. They’ve added $15.8 billion to domestic-equity funds since March, compared with outflows of $18.6 billion during the first five months of the bull market that began in October 2002, data from ICI shows.
Should inflation exceed returns on money-market accounts, that may cause more investors to buy equities. The 100 largest taxable U.S. funds returned an annualized 0.12 percent during the past week, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.
The Fed said on Sept. 23 that it anticipates keeping the benchmark interest rate “exceptionally low” for an “extended time.” Labor Department reports this month showed prices of goods imported into the U.S. tumbled 15 percent in August from a year earlier and consumer prices dropped 1.5 percent.
“Many of the fund managers I talk to that have missed this rally or underplayed this rally are sitting with way too much cash,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $214 billion. — Bloomberg.com 9/28/2009
So, the fact that there is a net inflow into stocks is an encouraging sign coming out of the worst financial crisis since the Great Depression. It shows that investors are willing to take on more risk, as most cash heavy portfolios have greatly underperformed the benchmarks over the past six months. The cash well still runs deep, and this could provide an added boost to the market in the coming weeks. Furthermore, with continued quantitative easing and economic growth on the horizon, there is sure to be growing concern over inflation. This fear over inflation will likely drive many to diversify out of cash and into inflation hedges like precious metals and basic materials.
However, we would have to caution against reading too much into these figures. In our experience, chasing performance can be disastrous for a portfolio because you may end up buying at a peak, instead at more attractive prices. We would have to think that at least some money managers are starting to become more defensive in light of the S&P 500 being up nearly 60% since the bottom. The advisors that had been invested at the bottom would be wise to take some profits and allocate them to cash and other less risky investments.
The hordes of cash on the sidelines, which are far greater than historical norms, will likely draw down in the near future as investor sentiment is mostly bullish right now and inflation has not materialized as feared. It will be interesting to see how the interplay of inflation concerns, investment advisors bullishness/bearishness, and other factors play into this trend.
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Why print more money if there is so much around?
Wall St. duped the Fed
did you ever think that 15 trillions is 35'000$ for each of 300 million Americans, toddlers unemployed etc everyone included.
Why is anyone worried about getting unemployed then. Together with all these beautiful portfolios everyone should be swimming in money.
Oh oops.. the banks own 7/8th's of that hmm.
FED GIVE THEBANKS MORE they don't have enough yet.....
On Sep 28 03:21 PM Hans111 wrote:
> 10 Trillions in savings....
> did you ever think that 15 trillions is 35'000$ for each of 300 million
> Americans, toddlers unemployed etc everyone included.
>
> Why is anyone worried about getting unemployed then. Together with
> all these beautiful portfolios everyone should be swimming in money.
>
>
> Oh oops.. the banks own 7/8th's of that hmm.
> FED GIVE THEBANKS MORE they don't have enough yet.....
1-investor sentiment is mostly bullish but not for those sitting on the sidelines, they are not about to jump at this stage of the game. They will wait for the next bus
2-Serious inflation is probably a few years away, deflation is what may be right around the corner, in any case fear of inflation is not what has kept main street out of the market, its FEAR!
3- The investment advisor's, the ones that missed the market are chomping at the bit, they have only a few months left to make good and earn good, and I believe main street knows this and will remain on the sidelines no matter how many calls they get from their broker because they remember it was there broker who was there to help them lose all there money
Fool me once shame on you, fool me twice shame on me!
safe money is not lost money, like the $15 trillion loss in wealth in the market and real estate crash. this will take a generation to recover, if at all, with the baby boomer generation all holding losses in both the market and real estate.
i would not depend on money market funds as a market driver. until some recovery in real estate comes. with the interest option arms coming due in 2010 and 11, more losses are expected in price deflation.
69 retired and 75% in cash and bonds.
We'll be back in the 70's again soon enough. Inflation will hit harder and faster than most anticipate, just like the 'rebound' in the stock market took us all for a surprise.
So suppose all of that $9.55 trillion changed hands and the old cash holders now own all of the S&P 500 and the old owners of the total S&P 500 now hold all of the cash. What has changed. Nothing! Just an exchange of assets. That's why the NYSE is called an exchange. Or the NASDAQ, AMEX, whatever.
Well yes, something will have changed. Those holding stock who wanted to get rid of it did. Now they hold the cash and will no longer be shouting that there's all this cash on the sidelines.
Think about it.
There is something terribly wrong with our country. End it...buy gold.
Look if you have something you are specifically trying to invest for, ie a house, education, new car, etc, and your investments get to your targeted amount, then fine sell, otherwise you should be holding equities and not trying to find the exact moment of when to sell and buy back again. Aside from being tax inefficient, you will also miss out on a lot of gains.
On Sep 29 01:34 AM johngonole wrote:
> I'm not sure I buy the cash on the sidelines bit either. It may be
> there but those who have cash probably want at least $25,000 just
> for a cushion. Beyond that if they haven't invested yet they are
> probably likely to wait for a 20% pullback or so. I have missed out
> on most of the run as I sold off way to early on the rise. I just
> don't see how we can justify current prices when on looks at company
> outlooks. The consumer isn't coming back while unemployment is rising.
> I think unemployment is actually a leading indicator this time. Markets
> have just ingnored it. I also have a theory that the Federal Reserve
> is behind much of the stock market rise. Much of the new liquidity
> (printed cash) has come in the form of the Fed buying worthless securities
> that they can't get rid of anytime soon. With a larger money base
> they know eventually that inflation will come. At that time they
> will try to raise interest rates by selling their assets to take
> cash back out of the system. They may not be able to do this with
> the phoney securities they bought. Now that they have stabelized
> markets they are keeping interest rates low. I think they are doing
> this by buying stocks. The stock markets is one of the only truly
> liquid markets left. Therefore, from the Fed's point of view, they
> will be able to raise interest rates most easily by SELLING the stock
> they are currrently buying. I'm sure, as always, that those in the
> know knew this and have profited handsomely from the stock market
> rise. This is my conspiracy theory but it could actually be true.
> Too bad, the audit the fed bill hasn't passed then we could know
> for sure.
What triggered my post was the copy of the latest Lipper FundsFlow report to hit my inbox. Yes, a lot of money has come out of MM funds ( 7 consecutive month of net outflows, if I recall correctly), and yes, a lot of that money went into various categories of equity funds (something just north of $4 billion for the month, if memory serves), but almost FIVE times as much went into fixed income funds.
Sure, many/most investors are chaffing under the sub 1% yields, and are looking for better returns, but they're not ready to dive back into the market at these levels, hence the flow to various forms of fixed income.