the so-called"MOUNTAIN OF CASH"

verfasst von leibovitz, 12.12.2001, 10:15

THE SO-CALLED"MOUNTAIN OF CASH"
Many analysts on Wall Street have, for the last few years, talked about a so-called"mountain of cash" just sitting on the sidelines waiting to plunge into stocks, driving the market higher. At first they used money market mutual funds and lately they have been adding savings accounts and CD's to push the $2.3 trillion in money market funds up to $4 or $6 trillion in a contest to see who can come up with the most spectacular figure. Ned Davis Research has also joined into this game with our chart S423 (Wall Street's favorite
chart) or by showing the big jumps in money supply or money market funds as I featured as recently as my Hotline last Friday (S926 - now up to 46.2% annualized growth in MMMF). Clearly there has been some bullish build-up in cash.
Yet we have also pointed out that nobody really knows how much of that liquidity is destined for stocks, bonds, savings, spending, or homes, etc. And we also have other charts that"say" relative to liabilities, there is no mountain of cash! For example, one could go out now and get a home equity loan. Once one did this, liquidity would magically increase but so would liabilities. If that is our mountain of cash, it is a mountain built with little real substance.
Just released Federal Reserve Flow of Fund statistics on our chart S01116 show household non-equity liquid assets of $6.7 trillion, a mountain of a number but more than offset with $7.9 trillion in liabilities for a free liquidity deficit of $1.3 trillion (see S01116, below left). On chart E0510, below right, for the overall economy, we throw in all domestic mutual funds (stocks and bonds) and household liquidity then is just 128% of liabilities, the lowest reading on record!
In conclusion, we rate liquidity as bullish for stocks but we have a few caveats. The"mountain of cash" could even be a"liquidity trap", but, in any case, it is a flimsy mountain. --Ned

www.ndr.com

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• the so-called"MOUNTAIN OF CASH" - leibovitz, 12.12.2001, 10:15