"Mountain" of cash just itching to get back into the market mostly a myth according to Comstock:
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Mountain Of Cash? --Not Even An Anthill
One of the bulls’ favorite arguments is the so-called huge mountain of cash in money market funds waiting
on the sidelines ready to pour into stocks at any time. A recent report by Ned Davis Research, however,
indicates that the so-called mountain may be less than meets the eye. It is true that money market fund
assets have soared in recent years to a recent record of $2.36 trillion. In comparison this amount was only
$570 billion in early 1993. In fact when we add in all other liquid assets except for stock and bond mutual
funds, household assets come to an enormous $6.67 trillion.
The other side of the coin, though, is the $7.95 trillion of household liabilities offsetting the assets. Assets
as a percentage of liabilities were only 84%, the lowest in at least 40 years. The 40-year average is 136%.
Furthermore, when we subtract the liabilities from the assets we come out with household free liquidity of
minus $1.28 trillion. Next, Davis calculates the ratio of household free liquidity to the total value of the
Wilshire 5000 stock index and comes up with a recent ratio of minus 13.4%, by far the lowest in at least 49
years. At the beginning of the secular bull market in 1982 household free liquidity was a positive 60% of
the value of the Wilshire index, and the 49-year average was 29%.
Bulls maintain that despite high valuations, plunging profits and a recessionary economy there is a vast
mountain of sidelined cash ready to spark a new bull market. It is apparent, however, that relative to
liabilities and relative to the total value of equities outstanding, there is not only no mountain of cash,
there is not even an anthill. |
