'Cash On The Sidelines' Crashes Near Record Lows

Tyler Durden's picture

With hedge fund liquidity (and their ability to absorb any market shock) at record lows, it seems retail investors are also all-in on stocks. As Ned Davis Research points out, total cash holdings for funds at lowest in 19 years.

In a Ned Davis calculation that treats the global investment portfolio as an amalgamation of stocks, bonds and cash, the latter now makes up about 17 percent of investor portfolios, less than half of its allocation in 2009 and close to the lowest since 1980.

"Cash is underweight" in Planet Earth's asset portfolio, says Ned Davis Research, as relative to balances in money market funds and cash among mutual fund managers, the value of global equities is the highest in almost two decades.

As Bloomberg notes, another way of describing it is that equities have risen so much from the depths of the financial crisis that their value is blotting out everything else to an extent not seen since the dot-com bubble. Like much valuation research these days, the Ned Davis study serves to illustrate exuberance among investors, showing that stocks keep levitating relative to a touchstone like cash that’s less given to volatility. “It’s a way of showing stocks are pretty stretched, but that’s not to say they’re going to go down tomorrow,” Ed Clissold, chief U.S. strategist at the Venice, Florida-based firm, said by phone. “It just means there’s not a lot of cash to act as a shock absorber. This measure does tend to mean revert over time, and we’re near the low-end of the range, so this ratio will go back up again.”

As we noted previously, assets in bear market funds are at record lows.


And it's not just retail, the hedgies are all-in too. As a reminder, Novus recently noted that hedge fund liquidity is at an all-time low - the ability to withstand any market stock is at a record low.

Simply put, the massively overcrowded hedge fund herding into US equities has created a crisis situation. With liquidity levels at record lows, the market will be unable to smoothly absorb any concerted selling pressure from large money managers.

“Their ability to sell in the marketplace is really going to depend on their peers who are trying to sell at the same time,” Stan Altshuller, chief research officer at the analytics firm, said by phone. “It becomes the prisoner’s dilemma.”

Finally, we note that the last bear market started in October 2007, just four months after liquidity appeared to be drained out from hedge funds.

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CJgipper's picture

Why invest in cash?  It's a guaranteed loss.  That's why there's no cash on the sidelines.  And momma bear yellen has all but stated (like some of her other board members) that she won't allow assets to decline in price.  How bow dah?

Chipped ham's picture

Or...How about that there are no possibilities of directing your own personal 401k allocations into cash. You MUST be in either stocks or bonds.  Dodd Frank saw to that. Asset/Fund Managers don't collect bonuses on cash, only on returns. Hence...How bow dah?  

CJgipper's picture

Don't I know.  I tried to sit in cash, but money market funds are all that are available in my plan.

GUS100CORRINA's picture

All the stars are lined up for this one.

Let's see ... record margin debt, no money left on the side lines, record high valuations for every metric known to man, record low earning growth, financial engineering from companies like CAT and corporate balance sheets that are levered to the moon.



Escrava Isaura's picture



Try this:

Starting in 1996, workers at Trump’s casinos were allowed to invest their 401(k) savings directly into Trump stock […] But that same year, THCR sold $1.1 billion in junk bonds to offset some of Trump’s personal debt and buy two more ill-fated casino properties in Atlantic City. As the company floundered in the years leading up to its second bankruptcy in 2004, the stock price plummeted. According to the class-action complaint, “Between 1996 and August, 2004, employees were encouraged to invest in THCR shares as the price fell from $30/share to $2/share.”
More than 400 employees still held Trump stock when the forced sale arrived. The stock had been trading at $0.80 on the day of the announcement but had dropped by more than a quarter, to an average of $0.57, when the employees were forced to sell their 924,698 shares the next month. For an employee who’d put $1,000 into her retirement account in 1997 when shares averaged $9.65 apiece, those savings had now withered to just $59.
Oh, and how did Donald Trump manage to scrape by during those bankruptcies?

He kept a $2 million annual salary after the company emerged from bankruptcy and took in more than $44 million in compensation over the course of the 14 years he served as chairman of THCR.

“I don’t think it’s a failure,” he said of the bankruptcy in 2004. “It’s a success.”

Just imagine what a terrific job he’ll do “protecting” Social Security!



vealparm's picture

I am sitting mostly in cash. Just sold an annuity and several bonds. I have some money in REITs and some in Senior floating rate loan funds. I am retired, have no debt, live in a low tax state and can easily live fine on my SS, pension, and IRA RMDs. I have no need/or desire to increase my wealth thru risk. When the "correction" comes I don't want to be in stocks.

Silver Savior's picture

Most plans allow you to take out loans. You could buy silver bullion because by the time of retirement the dollar won't be around. Depending on how close you are to retirement. In my case in 30 years do the math. The dollar is nearly worthless already. 

Osmium's picture

No cash on the sidelines?  No problem, just print another trillion.  I'm sure the SNB can step in and buy more stawks if needed.  

ThanksIwillHaveAnother's picture

Let crony shorting begin to fleece the retail speculators once again!

yogibear's picture

To make money the big boyz have to have cash movement. When everyone is on one side of the boat it's time to force the Muppets to the other side. Make money on the way down and buy cheap.

Time to drain the Muppets accounts again. Rinse and repeat.

Greed and fear never changes. A Federal Reserve production.

brushhog's picture

It sounds like the stocks have just gone so high that there is less cash RELATIVE to stocks. Might be alot of hedge funds will sell stocks to reset their holdings?

TheRideNeverEnds's picture

"Pull it."
-J. Yellen

TeethVillage88s's picture

Pull It!

Pardon, over.

I said 'PULL IT, NOW!'.

Dragon HAwk's picture

First big player to lock in their Profit wins.. I think that is how i read that article

The Harlequin's picture

A game of scissors, paper, rock anyone?

Silver Savior's picture

I felt pretty good buying gold and silver since 2013. Nothing else worth investing in. 

Silver Savior's picture

With all the complete bullshit that's going on in the world you would think people would stop trusting paper assets already. Virtual ones too. If you don't hold it you don't own it.