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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: sylvester80 who wrote (17688)	1/2/2002 2:45:19 PM
From: Sully-	Read Replies (3) \| Respond to of 99280

FEATURE-Pile of cash poised to boost U.S. stock market By Chelsea Emery NEW YORK, Jan 2 (Reuters) - The holiday giving season has passed, but there still is one present under the tree for stock investors -- a massive pile of cash that is tagged for Wall Street. Fund managers and individual investors yanked billions of dollars out of stocks and parked it in money market funds, savings accounts and cash last year as the U.S. economy slowed and benchmark stock indexes tumbled. But since the Federal Reserve has cut interest rates to their lowest point in 40 years, energy costs are down and businesses have chopped inventories, corporate profits are set to rebound. That makes stocks an attractive bet. ``There's enough cash out there to revive the economy, keep home sales strong and push stock prices higher,'' Edward Yardeni, chief investment strategist for Deutsche Banc Alex. Brown, said. ``It's enough to create a whole new bubble if we set our mind to it.'' Just look at a measure of money supply called ``money at zero maturity,'' or MZM. This measures investments that are easily converted into cash, like savings and money market accounts. MZM has surged to $5.6 trillion, Yardeni said. That's up almost $1 trillion in the past year and it now equals about half of the U.S. gross domestic product. Granted, money already has started flowing into the stock market as investors have grown confident about an economic rebound. About $15 billion poured into stock funds in November, gaining momentum from October, when $932 million trickled in, according to the Investment Company Institute, an industry trade group. Those investments are likely to continue because money market funds return so little. The average seven-day taxable fund pays only 1.58 percent interest, compared with 5.96 percent a year ago, according to Money Fund Report, a survey of money market fund returns. ``The Fed lowering rates has made it so that parking money in a money market fund isn't as attractive as it once was,'' said Edward Hemmelgarn, president of Shaker Investments, which oversees $2.2 billion. Stocks' recent gains and a drop in bond prices have also helped push investors into stocks, Hemmelgarn said. ``It's a cycle. As the stock market starts moving up, people will get more comfortable.'' CATALYSTS Drastically lower interest rates are the main catalyst for an economic recovery, investors say. The Fed has cut short-term rates 11 times in the past year to 1.75 percent, in one of the central bank's most aggressive efforts on record to stem a steep slowdown. Lower rates mean reduced borrowing costs for American businesses and consumers, improving corporate profit margins and boosting spending power. Oil prices have also dropped about 30 percent from September, putting more money into Americans' pockets. In addition, U.S. factories enjoyed the strongest flow of new orders since April 2000 and increased production in December even as they continued to shed unwanted inventories, The Institute for Supply Management said on Wednesday in its monthly Purchasing Managers' Index. These catalysts are expected to help strengthen the economy by increasing corporate profits and making investors more willing to use cash stockpiles. Stocks' recent gains indicate Wall Street is betting on a recovery, and putting its money where its mouth is. The Wilshire 5000 total market index (^TMW - news) is up 20 percent since Sept. 21, following the terror attacks on the United States. That represents a $2.1 trillion increase in wealth. ``This rally's got legs that will continue,'' said David Straus, who helps manage $80 million for Johnston Lemon Asset Management. To be sure, there are some good reasons investors have held back from dumping all their spare cash into stocks. A profit recovery is expected, but it is still far off. That's made some wary of jumping into stocks unequivocally. ``I'd like to see some sign we're getting an uptick in corporate profits,'' said James Walline, a portfolio manager for the Lutheran Brotherhood, which oversees $12 billion. Walline said he was holding between 5 percent and 7 percent cash and would lower it to about 2 percent when he sees evidence of a profit recovery. Profits for companies in the Standard & Poor's 500 index (^SPX - news) are expected to fall 16 percent in the first quarter, said Chuck Hill, director of research at market-research firm Thomson Financial/First Call. It's unclear if profits will recover by the second quarter, he said. Even so, many on Wall Street say a recovery will come and they're unwilling to wait much longer. ``I'm pretty confident the economy will start to grow again in 2002,'' said Hemmelgarn, who has about 2 percent to 3 percent cash in his portfolio -- ``slightly lower'' than average. ``I think its safe to put cash back in.'' biz.yahoo.com