What Does It All Mean?
Investor 1:
“Certainly this market will rip once all that
money on the sidelines is released.”
Investor 2:
“Yes, with over 2.3 trillion sitting in Money
Market funds, it will certainly be a boost once it finds its way into
equity funds or individual issues.”
This
conversation has been played out many times over the last few months,
and will probably continue to do so for some time to come. Now I am not
insinuating that this money will not come flowing back into equities at some
point, in fact some, around $7 billion, has been allocated towards equity funds
in the last few months. However, if we shed a little light on the whole dynamics
of the money-market industry, we are left with a slightly different view of
exactly how that money may or may not influence the future direction of stock
prices.
The fact remains, much of the money
that has been put into money market funds will probably remain there. First of
all, half of the 2.3 trillion is deposited by individual investors, the other
half is deposited by incorporations, government agencies, financial
institutions, pension funds & non-profit organizations.
The vast majority of the institutional
money is made up of businesses who are increasingly using money market funds as de
facto checking accounts as a means of escaping the dismal interest rates
offered at banks resulting from the cratering of interest rates. Consider this:
Yhe current yield on a 3 month treasury bill, a popular short-term investment
vehicle, is 1.85%. A tax free money-market fund may offer a yield of 1.91%.
While that not be a very large margin, it adds up when you are investing
millions.
Here is the real kicker to think about:
The mantra currently is that this money will be put to work once the “Bear
Market” passes. Brian Reid, a senior economist with the Investment Company
Institute states it best “For one thing, if individual and institutional
investors were using money funds as a refuge in which to wait out bear markets,
you would expect to see those funds shrink during bull markets, and that just
does not happen.”
Â
Source:
Investment Company Institute
What does it all mean? Nothing from a trading perspective, but certainly
something to keep in mind as you deploy assets on a longer-term horizon as most
traders do, IRSs, Keoghs etc. Don’t base part of your decision on the hopes of
this flood of cash pushing markets to higher levels.
Going back to Friday, there were some
trades to be had despite having the narrowest range on the S&Ps for the
year, a mere 8 points. The market was dominated by the 1137-38 level, and where
most of the good trades were initiated from. Again, being nimble and moving to
different sectors was the way to stay with the liquidity and momentum.
Currently the market is poised to open below this key 1137-38 level. The
market is anxiously awaiting the release of the NAPM report at 7:00 a.m.
PST. As usual, these economic releases tend to offer some great volatility
spikes which translate into nice scalp trades.
The Key Technical Numbers will appear
tomorrow. I will be in TradersWire
sharing them with you once the market opens.
As always, feel free to send me your
comments and questions.
Dave       Â
Â