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And What Will Soon Be The Scariest Chart: Presenting Record Low Mutual Fund Cash Levels

Tyler Durden's picture




 

Here is a chart of what could well be the biggest concern for the market, and one we have been highlights for a long time: mutual fund cash levels, which as ICI indicates were 3.4% in June, is the lowest ever. A 4% drop in the absolute value of mutual fund investments, effectively wipes out the capital buffer of most. Enter liquidations.

Chart courtesy of Roy Ashworth

 

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Thu, 08/04/2011 - 15:48 | 1524539 Western
Western's picture

Who's going to get raped in this game of musical chairs? The music is about to stop... actually it stopped months ago, but everyone was pretending there was still music to be played.

Alas, poor sheeple.

Thu, 08/04/2011 - 15:51 | 1524557 Ray1968
Ray1968's picture

My happiness will be complete when brokers and managers from the JPMorgue and Goldman are jumping off of tall Manhattan buildings.

and.... fuck them for the latest attack on silver.

Thu, 08/04/2011 - 16:58 | 1524723 tmosley
tmosley's picture

I'd rather fuck them WITH the latest attack on silver.

I will buy more once I feel that the attack is over, which I'm thinking will be tomorrow or Monday.  If they announce QE3 over the weekend, as I suspect they will, I will lock in prices on APMEX before the markets reopen Sunday night.

Thu, 08/04/2011 - 20:28 | 1525131 Triggernometry
Triggernometry's picture

Long time tmosley, hope all is well.  I'm surprised to hear you're using apmex, those premiums are horrendous, but I agree the raid on silver will continue at least tomorrow.  I recently traded some silver eagles for gold eagles, guess I got lucky playing the ratio because I'm ready to flip the gold back to silver.  Are you stacking other metals as well?

I've been thinking of stacking BRICs lately, the Ruble and Real are looking healthy, as are their women...

Fri, 08/05/2011 - 01:31 | 1525792 Hook Line and S...
Hook Line and Sphincter's picture

tmosley,

not to be crass, but I'd rather just fuck them. 

no lube, beach sand

Fri, 08/05/2011 - 02:58 | 1525879 La Guillotine
La Guillotine's picture

If debt deflation rears its ugly head again then silver will plummet with or without the help of TPTB.

Thu, 08/04/2011 - 15:57 | 1524567 Dr. Richard Head
Dr. Richard Head's picture

FUCK THE SHEEPLE.  For every one hundred sheep there was at least one, I guarantee at least one, screaming and yelling about this particular situation coming to fruition. The one that was yelling was never shy about bringing facts to the table, never shy. 

Unfortuntaley, for those sheeple the, ingrained mentality that "investing" in stocks was a way to retire and to put that capital to use was far superior than some Chicken Little yelling "The stocks are falling!!! The stocks are falling!!!"  TV, educational institutions, and even employers gave us the line of buy and hold.  Diversity was stressed, but that diversity just meant different pieces of paper with different letters on them. 

Perhaps this market shake down will be the wake up call for Johnny Latecomer.  If not, then fuck them. They were warned and many of them still ignore the advice in the face of the truth smacking them in the head. FUCK EM. FUCK EM ALL.

Thu, 08/04/2011 - 16:29 | 1524660 Cash_is_Trash
Cash_is_Trash's picture

I wonder if you can eat sheeple.

Thu, 08/04/2011 - 17:01 | 1524733 fwchiro
fwchiro's picture

soylent sheeple

Thu, 08/04/2011 - 17:55 | 1524861 smlbizman
smlbizman's picture

and dick head, it is not just the unedumacated...i have friends...she has 2 masters, he is an engineer ....he told me he has faith in the usa...i asked him what faith is bringing us back, construction, auto, housing..no answer....than at a dinner party one night i showed his 16 year old, private school, going to be an engineer like dad son, a silver bar with a harley on it, ya know something he could relate to...when i explained it was silver ...he said " you always think there is a conspiricy"..this thought came from private conversations in his home....another friend, who drives a truck for fed ex and proudly let me know he watches them all, fox, cnn, and even al sharpton so he knows what is going on and laughs at me......FUCK EM, FUCK EM ALL 

Thu, 08/04/2011 - 20:15 | 1525112 Citxmech
Citxmech's picture

I ask every market sychophant the same question:  "So what is going to fuel this elusive recover?". . .  (crickets)

But still they believe - I can quote energy stats, PM performance, the ravages of QE/money printing - yet still they keep "the faith" with no apparent rational support.

Denial ain't just a river in Egypt.

Thu, 08/04/2011 - 20:49 | 1525176 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

There are probably an infinite number of ways to say "I simply cannot imagine the situation you describe."  Deep down these folks know they'll sounds stupid if they say this, so they something else like "I have faith."

Thu, 08/04/2011 - 22:53 | 1525473 mick_richfield
mick_richfield's picture

I understand the frustration, because I have felt it like you.  I have talked to 200 people, and 196 of them have thought me a fool.  Simple people.

But today I talked to a good young man, and told him all the things you ZH assholes would tell him -- and he got it.  He was already thinking it, but it wasn't quite -- conscious. 

This was quite a feeling.

It might have helped a while ago that I gave him a Morgan Dollar.  I think CD told me to do shit like that that. 

I do not believe that the young man had ever touched silver before.

So -- be angry if you want to be.  Cry the beloved species.  Have a drink.  ( Like me, now. )  Then get back to work. 

Save as many as you can.

 

Fri, 08/05/2011 - 01:38 | 1525800 Hook Line and S...
Hook Line and Sphincter's picture

yes, it can happen. i was on a plane with a SW attendant in tow seat side. After a small conversation... He awoke. F'n amazing. He called me the following week, and i coached him through the denial based seeds. he liquidated his 401k at the tune of well over 100k and has done quite well. I suspect he and his family will be alive and eating well to see the next 50 yrs come around.

Fri, 08/05/2011 - 03:10 | 1525883 La Guillotine
La Guillotine's picture

Mick, there are always going to be the poor and the people that don't see the freight train coming down the track.  You lot on Zero Hedge are way ahead of the curve but you can't be ahead of the curve if some people aren't behind it.  This modern idea that the world should be fair is just insurance sales pitch from governments to keep them looking indispensible.  You get winners and loser, i just try not to lose too often.

Thu, 08/04/2011 - 21:46 | 1525322 NumNutt
NumNutt's picture

That is funny because I feel the same way, I tried to warn people back in 2006 about housing. They couldn't see that train comming. laughed at me and thought I was a nut. Never said "you were right" when if finally happened. Same thing again this week, I was trying to warn my parents about what was going on, they only watch MSM, again with the "he is crazy" reaction. Well I am finally at the same point as you. I think Johny Rotten of the Sex Pistols said it best "Fuck this! Fuck that! Fuck all the fuckups and their fucking brats!!!"

Thu, 08/04/2011 - 22:32 | 1525431 Jena
Jena's picture

It's just hard for people to see what is right before their eyes.  Denial and distraction are powerful forces.  Sometimes it takes something major to shake a person out of their reverie.

The media is telling everyone that it'll all be all right and they believe it.  So now back to your regularly scheduled programming...

Thu, 08/04/2011 - 16:55 | 1524716 tictawk
tictawk's picture

If the market ever locks up, there will be real panic and the liquidation will start. They will sell any and all assets that are liquid and at some point they will even start to sell BONDS. Why? because they know the Fed will attempt to monetize debt and there will be a rush to cash in their chips. Unless the Fed explicitly says they cannot do more. anyway, at some point liquidity concerns force LONG TERM MARKET interest rates to go HIGHER.

Thu, 08/04/2011 - 20:18 | 1525119 Citxmech
Citxmech's picture

Eventually there will be a loss of faith in current fiat currencies.  Of course the bankers will come up with some "alternative" but I'm wondering if the damage to their credibility might be fatal.  I do worry about them trying to prevent us peons from holding PMs though. . .  

Thu, 08/04/2011 - 15:48 | 1524542 kito
kito's picture

tyler what about money market funds for short term holdings??? do we bail now??

Thu, 08/04/2011 - 16:10 | 1524595 Commander Cody
Commander Cody's picture

Depends on what they hold. The Cash Reserves fund at Fidelity has most money in European bank notes. Considering the state of European banks, how safe do you feel?

Thu, 08/04/2011 - 17:13 | 1524762 moldygoat
moldygoat's picture

any thoughts on Canadian Gov't bonds vs. Money Market funds. Which would be safer?

Thanks

Thu, 08/04/2011 - 22:41 | 1525437 WonderDawg
WonderDawg's picture

Cold hard motherfucking cash is going to be cool again. Get some. Keep it in a safe, but not a safety deposit box, as you can't get to it if the banks are on holiday.

Thu, 08/04/2011 - 15:48 | 1524543 Larry Darrell
Larry Darrell's picture

So gold and silver will be on sale soon?

 

Thu, 08/04/2011 - 16:08 | 1524593 JohnG
JohnG's picture

Yep.  There's a tell.

Punch up a 1 min chart on /SI.  The volume ramp at 8:30 was a telegram to everyone who saw it.

I've seen this every time there is a big raid.  Sure sell signal, short at open, cover and go long at close.

Free fiat.

Thu, 08/04/2011 - 16:28 | 1524659 gorillaonyourback
gorillaonyourback's picture

couldn't sell stock, had to sell gold

Thu, 08/04/2011 - 15:51 | 1524548 Catullus
Catullus's picture

Never meet a margin call. Ever.

Thu, 08/04/2011 - 15:52 | 1524550 IQ 145
IQ 145's picture

Yes. Fundamentals, Bitchaez! Good reportage, Tyler.

Thu, 08/04/2011 - 15:50 | 1524555 wombats
wombats's picture

Transitory cash flow depression?

Thu, 08/04/2011 - 16:25 | 1524647 DormRoom
DormRoom's picture

QE allowed households who weren't deleveraging to play the market, believing it to be near risk free.  If the market further implodes, household who formerly had healthy balance sheets, will be underwater. So the balance sheet recession becomes a balance sheet depression. 

Thu, 08/04/2011 - 15:59 | 1524569 CapitalHole
CapitalHole's picture

The concept of "capital buffer" does not exist for mutual funds. A decline in the value of the holdings doesn't wipe out anything. It only decreases the value of the fund units. The loss is just passed on to investors.

Low cash is bad news, but for a different reason. Cash on the sidelines has the potential to be invested. When funds buy stocks, stock prices go up. If the funds don't have cash to invest, they can't buy. Unless they sell first.

Historical analysis shows that mutual fund cash holdings are an excellent market predictor. When funds hold a lot of cash, they tend to invest it, and this drives the market up. When they run out of cash, they stop buying, and the market falls.

So, who are the buyers with cash on the sidelines who will scoop up all the bargains created in today's crash? I guess it's not mutual funds... Is there anyone?

Thu, 08/04/2011 - 16:10 | 1524588 hedgeless_horseman
hedgeless_horseman's picture

You beat me to it, and your post is better.  I was just going to post a definition of NAV.

OT:  My guess is that the larger mutual funds are all captured, as the Feds have them by the balls with legislative risk regarding annuities.  That is why they had for the most part gone all-in, as evidenced by Tyler's chart.

Thu, 08/04/2011 - 16:27 | 1524651 Duck
Duck's picture

Yes, this post is poorly written.  It's not 4% fall in value but rather a 4% redemption of shares that will force the fund to sell stock holdings.

Thu, 08/04/2011 - 16:50 | 1524699 Buckaroo Banzai
Buckaroo Banzai's picture

However, for mutual funds that employ leverage, a 4% fall in value may require them to sell regardless of (or in addition to) redemptions.

Thu, 08/04/2011 - 17:36 | 1524812 hedgeless_horseman
hedgeless_horseman's picture

 

 

Good point, BB.

 

Jan 4, 2009 WSJ Article

Leverage Shakes Up Mutual Funds, Which Discover a Strategy's Downside

In recent years, more mutual funds have used borrowed money to juice returns and lure investors. Now, they are discovering the downside of leverage, and some are cutting back.

 

...

 

Under federal law, mutual funds can't take on debt of more than a third of their assets. If markets decline and assets fall, funds have to reduce their borrowing to stay within the limit. The $200 billion closed-end fund industry was forced to do just that last year, as markets fell sharply for two months after mid-September.

http://online.wsj.com/article/SB123276245590712349.html

Thu, 08/04/2011 - 15:59 | 1524574 Irish66
Irish66's picture

QE3 doesn't matter, average joe is cashing everything in.  Especially 401k

Thu, 08/04/2011 - 16:38 | 1524650 Idiot Savant
Idiot Savant's picture

I don't know about your statement; do you have any data to back it up?

I haven't heard any J6Ps talk about cashing out of their 401Ks. Of course, J6P may do it and not talk about it for fear of ridicule. Since 50%+ US population is living check to check, if they are cashing out, it's probably just to buy more iCrap.

Thu, 08/04/2011 - 17:05 | 1524736 Kali
Kali's picture

was talking to lady at my local coin shop today, she was upset cuz they wouldn't let her borrow or cash out her 401k, she wanted to buy more gold.  Didn't catch the name of the company she worked for, but she said they had been bought by GS recently.  lolololol.

Thu, 08/04/2011 - 17:10 | 1524737 Kali
Kali's picture

Oops, dupe!

Thu, 08/04/2011 - 17:03 | 1524738 tmosley
tmosley's picture

Yesterday Zero Hedge had an article on domestic equity outflows that were not accompanied by inflows in any other sector, indeed, money left the entire fiat complex on the whole.

Thu, 08/04/2011 - 16:06 | 1524581 Mercury
Mercury's picture

Well the good news is after today, even with no selling....cash levels are higher as a percentage of assets!

Until the redemptions start to roll in anyway...

Thu, 08/04/2011 - 16:06 | 1524586 becky quick and...
becky quick and her beautiful mouth's picture

how long until the supercongress passes a law banning early redemptions or 401k loans?

Thu, 08/04/2011 - 16:11 | 1524601 Jeremy Roenick
Jeremy Roenick's picture

Since Elvis is leaving the building as we speak.  Coming in 5... 4... 3... 2...

Thu, 08/04/2011 - 16:49 | 1524704 Buckaroo Banzai
Buckaroo Banzai's picture

how long before the supercongress seizes 401ks?

Thu, 08/04/2011 - 22:59 | 1525496 mick_richfield
mick_richfield's picture

Seize is such an ugly word.

Withdraw tax exemptions for non-USG equites.  Be in T-Bills, or be taxed.  Easy.

Haven't the Powers always used the tax code to drive the cattle as they will? 

 

 

 

Thu, 08/04/2011 - 17:58 | 1524864 prophet
prophet's picture

A drop in the absolute value of mutual fund investments boosts cash levels.

Thu, 08/04/2011 - 18:41 | 1524951 Pete15
Pete15's picture

Im thinking im done with my Euro Pac account and just buying more gold and silver, I can only trust the precious 

Thu, 08/04/2011 - 20:31 | 1525130 KnowIDontKnow
KnowIDontKnow's picture

" mutual fund cash levels, which as ICI indicates were 3.4% in June, is the lowest ever. A 4% drop in the absolute value of mutual fund investments, effectively wipes out the capital buffer..."

Honest question: is that really how it works?  I would have thought that if you were holding 3.4% cash and your 96.6% equities (or whatever other holdings) dropped 4%, that would leave you with the same amount of cash and a lesser amount of equities, which would mean your cash position would actually increase as a percentage of your total holdings, from 3.4 percent to 3.4/(3.4+96.6*0.96) = 3.53 percent.  Can someone explain this a little more explicitly than Tyler?  I'm still learning here.

edit: Just read Duck's post above.  That clarifies it. Cheers.

Thu, 08/04/2011 - 22:32 | 1525426 Jovil
Jovil's picture

How are you preparing for de dollar daily debasement or devaluation?

Surviving a currency devaluation

http://lonerangersilver.wordpress.com/2011/06/20/living-through-a-curren...

Thu, 08/04/2011 - 22:54 | 1525481 Grand Supercycle
Grand Supercycle's picture

S&P500 head and shoulders target is 1,176 and further downside
expected.

As mentioned for some time - S&P500 monthly has been tracking sideways this year. This extensive distribution signified a bearish big picture and that a significant downtrend would follow.

http://stockmarket618.wordpress.com

Wed, 09/14/2011 - 04:46 | 1667383 chinawholesaler
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