3 Charts On The "Money On The Sidelines"

Tyler Durden's picture

We hear a lot of the impending flood of money on the sidelines that will avalanche into the equity market to take us to Dow 20000 as retail sells low and buys high. Besides the arguments over the generally nonsensical argument of where the money comes from, who sold so you could buy stocks and who bought your 'safe' vehicle so that you could use that cash for 'risky' instruments, we note three interesting charts from Nomura today on recent fund flows and technicals that suggest perhaps we should not all be holding our breath for the proverbial money-flow (especially as we see outflows in the last week or so from some of the real high-beta darlings of the rally such as high-yield bond ETFs).


1) US money market fund holdings are low - especially for retail. Whether joe-sixpack has been using this 'cash' to buy iPads or fill his car with gas, there doesn't seem to be much left in that be able to juice US equities. Institutional money remains down but has room to go - but this is the smart money right? The speed of the drop in institutional holdings of 'cash' appears to be decelerating - not exactly bullish for all that money on the sidelines flushing into stocks anytime soon.


2) Net purchases of US equity mutual funds are near extremes of 'exuberance' suggesting retail has already played its card here. On a z-score basis, net flows into US equity mutual funds are near their empirical highs - a level that has signaled relative turning points in the past. So it appears the money is in from the sidelines for now...


and 3) Global equity buybacks have outpaced issuance notably in the last six months but are now stalling. This pure supply and demand perspective on the equity market shows that the use of low cost funding to purchase back corporation's shares has indeed enabled significant rallies over the course of the last decade. The upper pane is Nomura's relative measure of this flow globally as a percentage of global market cap (a drop in the red line means that buybacks are dominating issuance). There are periods of exogenous shock or old-school Fed rate hikes which will remove some of the incentive but in recent years, this flow has been clearly positive. We note the inflection point very recently in the trend as perhaps CEOs start to question the value of using their cash-pile within the context of growth questions and equity value.



So while not exactly scientific, we see cash on the sidelines is actually low, money has already flowed into equities and moved to a somewhat exuberant level, and one of the most fundamental drivers of demand for stocks (buybacks net of issuance) appears to be inflecting.

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Cult_of_Reason's picture

The "money on the sidelines" will flood the market on the short side -- to sell the rips (instead of "buy the dips" that the bulls hoping for).

The “money on the sidelines” that refused to buy this Ponzi scheme stock market is not stupid to buy the Ponzi when every single bull is “fully invested” (Barton Biggs is 90% long) and waiting for a new bagholder sucker.



TruthInSunshine's picture

So what you're saying is that unless the institutions and people now invested in electronic certificates of shares of publicly traded companies can't find other institutions and people to buy their already 'owned' shares at a higher price than they paid, they can't profit?

They can eat those shares, though, if need be.

Cult_of_Reason's picture

Or ask Bernanke to use the printing press (in addition to $3 trillion already printed) to bail them out again.

TruthInSunshine's picture

Yes, this is true.

The current holders had better hope that the magic act (which in and of itself, if repeated often enough, will induce a massive sell-off since there still is a relationship between price & demand in the real economy; but I massively digress) comes in time before their 'owned' shares begin to decline in value, because of all that massive leverage baked in the cake.

Or before tears become waterfalls.

Cult_of_Reason's picture

People that invested in Madoff Ponzi Fund initially thought they were the winners too (like the bulls nowdays), but in reality from the get-go they were the losers.

Bunga Bunga's picture

Everyone believes he would win. Otherwise casinos would not exist.

TruthInSunshine's picture

Or, stated otherwise, dumb money typically follows the least ethical.

Case in point:  John Paulson made a cool billion conspiring with Goldman Sachs (Abacus, etc.) to set up toxic repositories of MBS after getting Fitch to 're-brand' them investment grade, which he & that Muppet Bucket Shop, Goldman, then shorted (but only after Goldman put the toxic waste MBS on its 'convict buy' list for its VIP Muppet Clients).

After making headlines because of his ill-gotten gains, 30 billion poured into Paulson's fund, of which he proceeded to lose half, for which he made an additional 4 billion in fees in that process.

Cool gig if you can get it!

rocker's picture

Good Stuff about Paulson. Seems that he does not do as well when he works alone.


Footnote:  If cash on the sidelines is actually low.

Does that mean :  CNBC Lied Again.

Sam Clemons's picture

In case you haven't seen the Rydex cash data, look here:


Since October 2005, all holdings within Rydex mutual funds has declined about 10%.  Bear fund + Money market funds / Bull funds is near an all time low.  Not sure where people get this cash on the sidelines thing...maybe CNBC.

DosZap's picture

Sam Clemons

 Not sure where people get this cash on the sidelines thing...maybe CNBC.

Oh,its definitely there, just sitting in CD's, and MMKT accts,and 401k IRA's.

Around 12-15 Trillion.

Like the gentleman above said, most Boomers that have a modicum of cash, were eaten twice in the Mkt over their working lives, and they are smart enough to see what Benny n the Jets are up to.The market can go to hell as far as they are concerned.

SheepDog-One's picture

Everyone banking on 'Moneybags Joe McBankrupt Retail' to rush in now and buy near all-time record bubble equity top again?

Im buyin more popcorn, this is gonna be fun to watch.

The trend is your friend's picture

Most retail investors have had enough.  the tech bubble was bad but the home equity loss, 401k loss and regular investment portfolio loss really did them in the last time around.  The sense i get from speaking to people is "i don't care if the market goes up 30% from here i don't want to lose any more money because i really can't afford to".  So it doesn't matter that the dealer is giving out blakjack's on the table, those left in the casino are not sitting down on the table.

CClarity's picture

Money still on the sidelines is still scared of manipulated HFT equity markets and doesn't believe they can play.  Understand that the medicated nature of things right now is not "investing" it is "trading/renting" and they're not fast enough to play with the algo robots.  They might buy raw land soon.

MFL8240's picture

Nothing we are told by this group is the truth.  It is becoming increasingly disturbing to live in a coutry with more lies than truth.

Hippocratic Oaf's picture

you forgot the 'n' in country when you should have dropped the 'o'

EscapeKey's picture

Lots of money on the sidelines - at the Federal Reserve.

sabra1's picture

ha! only a matter of time 'til california gets what's left of the sheeples' accounts!

Uinta's picture

I'm confused. What happened to the $2.2 trillion in demand deposits mentioned here: http://www.zerohedge.com/news/where-money-really-be-careful-what-you-wish

and the outflow of retail from mutual funds mentioned here http://www.zerohedge.com/news/135-billion-redeemed-us-equity-mutual-funds-2011-34-35-consecutive-weekly-outflows


Bunga Bunga's picture

A deposit is only a liability of a bank, not cash in a vault.

Uinta's picture

So I take it you didn't bother to go to the link to read the post.

prodigious_idea's picture

That's an accounting concept you're describing.  It has nothing to do with cash on hand.  DD's are frequently grouped with other non-invested funds as a measure of possible infusion into the market.

Bunga Bunga's picture

Basically money is an accounting concept only. It does not exist to the extend most believe.

chet's picture

Yeah it seems like we've been hearing about big outflows from equity mutual funds here on ZH.  Can anyone square that circle?

SheepDog-One's picture

Could be it all went into firearms purchases, those are at record highs too.

prodigious_idea's picture

I have always included demand deposits and CD's, which makes the sideline number considerably larger. Anyway, calling retail investors "dumb money" isn't a well kept secret.  Maybe the dumb money isn't so dumb this time.  Won't that fuck up the game.


eddiebe's picture

Still true: White man speak with forked tongue.( well ok., now black man too.) Shitty karma bitcheez.

TooBearish's picture

Que the Trim Tabs dood looking for down 6000 in 3....2....1....

SheepDog-One's picture

As much as I dont like Biderman his bullish calls at 9,000 was right, as much as I dont like it. 

adr's picture

I'm going long really thick mattresses or safes.

Now that the government can just go into your bank account and steal your money for no reason and claim later that you owed it to them. Joe Bob Sixpack isn't going to use any bank anymore, let alone invest in the stock market.

Our economy is truly 100% fucked.


rlouis's picture

Where's the chart showing all of the queen's laundered drug money? 

Aren't corporate buybacks these days a wash?  Don't most corps buy the shares back so they can give them to insiders?

q99x2's picture

If money is coming from central banks into the market all will be fine.