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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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To: TraderAlan who wrote (5677)11/8/1998 7:57:00 PM
From: Paul K   of 12617
 
Alan, We may have just had a preview of fund problems in the past few months.

The Oct 98 issue of Mutual Funds magazine had an article called "Equity Funds Run Out of Cash"

The following are excerpts from the article:

"...The Funds have 4% cash on hand (4 cents for every dollar of assets).
By historical standards, that's the smallest cash position the mutual fund industry has ever had in 54 years.

...Cash reserves are in the most dangerous territory in over twenty years.... the funds are in no position to meet redemptions without being forced to sell equities from their portfolios...

In mid 1972, equity funds held just 4.6% of their assets in cash and equivalents, over the following 2.5 years, the DJA lost nearly half its value, the last great bear market.
That cash reserve was the second lowest on record until this year.

...The lowest, a 4.3% liquidity ratio in late 1961 immediately preceded a 35% market decline in just six months. Dearths of liquidity in 1965 and 1976 were also followed by significant market corrections.

... A portfolio manager with only 1% or 2% cash can't handle even a few days of redemptions from shareholders without selling stocks. And if he's forced to sell, he just adds more downside pressure to the market - helping to cook his own goose..."

mutualfundsmagazine.com
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