Forget Money On The Sidelines, Institutional Investors Are All-In

Tyler Durden's picture


We have discussed the money-on-the-sidelines fallacy a few times recently in the context of the circular money-flows (clear misunderstanding of the idea of a buyer and a seller) as well as mutual fund cash levels, retail sentiment, demographic shifts, and insider transactions. There is mounting evidence, as Morgan Stanley's Michael Wilson notes, that 'make no mistake...institutional investors are all-in' as the rolling beta of mutual funds relative to the S&P 500 tops 1.10x at multi-year highs, institutional investors are most exposed to high beta sectors since MS data began, and long/shorts funds are near their most levered long since MS records began. Combine this with the massive surge in Insider Selling transactions in the last few weeks (apropos Charles Biderman's comments on the rally's support by Insider buying til now) and perhaps bearish retail sentiment will lead this market down as we hope that finally 'money-on-the-sidelines' fades from the parlance of all but the most aged and incompetent of market prognosticators.


Mutual Fund 1 Month Rolling Beta vs S&P 500 at record highs and well over 1x...

The percent of institutional investors who are most overweight the high beta sectors is at record highs...

And long/short funds are increasingly highly levered long with Gross  (Delta-adjusted) near record highs...


Insider-selling transactions have surged after Insider-Buys dominated for much of the last few months...


And so perhaps it is the retail investor with their rising bearish sentiment (lower pane) that leads the market down this time once again - as it did in 2011...


Charts: Morgan Stanley and Bloomberg


And perhaps the clearest (and most to the point on commentators perspectives) explanation of the 'money flow' myth from a 2007 John Hussman article:

The 'money flow' myth


I am increasingly losing confidence that Wall Street operates on a well-defined base of knowledge. Instead, I am struck by the number of platitudes and false constructs that seem to dominate the investment management industry.


First, we should be very clear that there is no such thing as money going into or out of a secondary market. When stocks are issued in an IPO, or bonds are floated to investors, companies receive funds from investors and, in return, give investors pieces of paper called stocks and bonds, as evidence of the investors' claim on some future stream of cash. This is a 'primary market' transaction.


Once those pieces of paper are issued, they are traded between investors in the 'secondary market'. When we talk about the stock market, we're talking almost exclusively about the secondary market, because new issues make up a very small part of total activity.


Dear Wall Street analysts and financial reporters - when investors purchase a stock in the secondary market, the dollars that buyers bring 'into' the market are immediately taken 'out of' the market in the hands of the sellers. It is an exchange. This is why the place it happens is called a 'stock exchange'. The stock market is not an air balloon into which money goes in or out and expands or contracts that balloon. Nor is it a water balloon that is expanded by pouring in 'liquidity'. Prices are not driven by the amount of money that buyers 'put in' or sellers 'take out' (as those dollar amounts are identical). Prices are determined by the relative eagerness of the buyer versus the seller.


If a dentist in Poughkeepsie is willing to pay up 10 cents to buy a single share of General Electric, the total market value of General Electric increases by over $1 billion (GE has 10.28 billion shares outstanding - do the math). In this way, market capitalization can be created and destroyed out of thin air and on the smallest of trading volumes. So you'd better be sure that the there is a sound and fairly reliable stream of expected cash flows backing up the value of the securities you're buying.


Cash does not ever find a 'home' in a secondary market. Every time you hear the phrase 'investors are putting money into' or 'investors are taking money out of', or 'money is flowing out of - and into', it is a signal that the speaker is unable to distinguish a secondary market from a primary one.


As I used to teach my students, if Mickey sells his money market fund to buy stocks from Ricky, the money market fund has to sell some of its T-bills or commercial paper to Nicky, whose cash goes to Mickey, who uses the cash to buy stocks from Ricky. In the end, the cash that was held by Nicky is now held by Ricky, the money market securities that were held by Mickey are now held by Nicky, and the stock that was held by Ricky is now held by Mickey. There may have been some change in the relative prices between cash, money market securities and stocks, depending on which of the three was most eager, but there is precisely the same amount of 'cash on the sidelines' after that set of transactions as there was before it.

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Mon, 03/26/2012 - 14:53 | 2291929 TruthInSunshine
TruthInSunshine's picture

The Bernank is like the Dunkin' Donuts guy.

He'll just make some more. It's time to make the donuts...errr...print some more fiat; you only have to be a good friend of the FRBNY, bitchez.


It's never been a better time to load up on PCLN!

Mon, 03/26/2012 - 14:58 | 2291970 tom a taxpayer
tom a taxpayer's picture

Mmmm-mmmm! Another trillion sugar-glazed donuts, please Ben. The Primary Dealers, stock market, White House, and Congress love the sugar-high. Just keep pumping out the dough, Ben, because if they come off the sugar-high, it could get ugly. 

Mon, 03/26/2012 - 15:19 | 2292050 slaughterer
slaughterer's picture

A bunch of actively trading ZH members have been posting trades on a discussion group on google finance for the ticker SPY.  Come and join us if you want.  For today:


We also post here alot. 

Mon, 03/26/2012 - 16:18 | 2292250 Jake88
Jake88's picture

Time to make the donuts

Mon, 03/26/2012 - 17:08 | 2292418 The Big Ching-aso
The Big Ching-aso's picture



Reminds me of when I tell my wife, "Im all in", and then she sez I thought you already were.

Mon, 03/26/2012 - 14:50 | 2291941 THECOMINGDEPRESSION

I'm all in TOO; WITH GOLD and SILVER

Mon, 03/26/2012 - 15:18 | 2292046 francis_sawyer
francis_sawyer's picture

Put me in coach... I'm ready to play...

Mon, 03/26/2012 - 14:52 | 2291943 derek_vineyard
derek_vineyard's picture

fixed income returns less than inflation, so might as well expand PE's and buy up dividends as there is a mad scramble for any type of its spreading to rental income market ...........risk everywhere!!!!!!!!!!!!!!   ZIRP and pockets of deflationary pressures are powerful , be careful

Mon, 03/26/2012 - 17:45 | 2292519 He_Who Carried ...
He_Who Carried The Sun's picture

[quote] we hope that finally 'money-on-the-sidelines' fades...

Why would you HOPE that other than for ideologist reasons?

Mon, 03/26/2012 - 14:52 | 2291944 Everybodys All ...
Everybodys All American's picture

The banks only way of making any money right now because of the flat bond yield curve and low loan demand is to play the stock market. This historically always end well Bernanke.

Mon, 03/26/2012 - 15:15 | 2292034 spastic_colon
spastic_colon's picture

even better when downside markets have been legislated it all makes sense

Mon, 03/26/2012 - 14:53 | 2291951 Doubleguns
Doubleguns's picture

All the pension plans are all in. That soulds like a really good situation forming right there.

Mon, 03/26/2012 - 22:59 | 2293258 Kali
Kali's picture

I would love a montage of the faces of all these people when they realize everything they thought they had, does not exist.  To have that red pill moment after it's too late to save yourself must truly be one of life's most unpleasant moments.

Mon, 03/26/2012 - 14:54 | 2291952 AmazingLarry
AmazingLarry's picture

My money is in the ground.

Mon, 03/26/2012 - 15:03 | 2291994 Sudden Debt
Sudden Debt's picture

You forgot to take the gold fillings from your grandparents teeth before they got burried?

Mon, 03/26/2012 - 17:10 | 2292422 The Big Ching-aso
The Big Ching-aso's picture



Ya, there's an untapped gold mine in cemetaries.

Mon, 03/26/2012 - 17:11 | 2292428 Schmuck Raker
Schmuck Raker's picture

That isn't funny SD.

My grandfather died in a boating accident just a few weeks ago, with a mouthful of gold fillings. Tragic.

Mon, 03/26/2012 - 21:34 | 2293091 Likstane
Likstane's picture

My condolences.  Where was his accident?

Mon, 03/26/2012 - 16:04 | 2292190 DaveyJones
DaveyJones's picture

yeah, I've expanded my garden too

Mon, 03/26/2012 - 14:54 | 2291954 Christoph830
Christoph830's picture

"I have a bad feeling about this..."

Mon, 03/26/2012 - 15:05 | 2291997 GeneMarchbanks
GeneMarchbanks's picture

Do not be concerned, it'll be rapetastic.

Mon, 03/26/2012 - 15:03 | 2291963 barliman
barliman's picture


Money on the sidelines?

Well, there is all the money the Chairsatan can print - but the ability to control where that money goes is an open question. The Treasury yields are back up today.

Oil seems to be proving resilient for WTI above $ 105/barrel and Brent at $ 124+

Inflation is still getting built into goods across the board and more money won't solve that problem.

As ZH has pointed out before - the retail money on the sidelines is being used to keep peoples' individual situations right side up.

How long before that factoid can no longer be surpressed?

That's the real question.


P.S. Is anyone missing the point institutional investors are the "dumb money" & "bigger fools" in the markets today?

Mon, 03/26/2012 - 15:48 | 2292137 TruthInSunshine
TruthInSunshine's picture

How dare you imply that mutual fund managers, fine, competent folks like the ones managing calPERS, and other institutional money managers are dumb money (just because there's an unshakeable historicaly corollary relationship that lends credence to that claim)!

How dare you, sir!

Mon, 03/26/2012 - 15:59 | 2292176 GCT
GCT's picture

I am a dummie and I am in cash and gold and will remain there for now.  Picked up 36 ounces last week.  I may be seeing this wrong but I think the markets are topping out and now is not a good time for someone like me to try and hop in.

Mon, 03/26/2012 - 14:59 | 2291972 gangland
gangland's picture

Ay ay ay ay ay ya ya ya i'm afraid im n n n n not l l l l ong enough...t t t tapioca pudding then n n n nap time?

Mon, 03/26/2012 - 15:02 | 2291991 Sudden Debt
Sudden Debt's picture

I think the FED still has some money on the sidelines... 125 million a hour to be exact.

Mon, 03/26/2012 - 15:05 | 2292001 TradingJoe
TradingJoe's picture

Its 3:05 PM EST and the SPY shows 70M shares "traded"!!! Biggest JOKE Ever!

Mon, 03/26/2012 - 15:57 | 2292170 Translational Lift
Translational Lift's picture

Just wait till the first big fund decides to bail.... then all hell will break loose with everyone heading for the fire exits at the same time..........Not a pretty picture.....

Mon, 03/26/2012 - 15:06 | 2292002 spastic_colon
spastic_colon's picture

wouldn't this be contrarian information?  since now all of the wire houses are sounding less bullish.  why should we believe MS over GS?

Mon, 03/26/2012 - 15:06 | 2292007 Let The Wurlitz...
Let The Wurlitzer Play's picture

What is interesting about the "beta" chart is the comparison of 2008 & 2009 (the "big" crash) beta compared to the 2012 beta today.

Do we also have a beta bubble?


Mon, 03/26/2012 - 15:11 | 2292022 luna_man
luna_man's picture



What's that you say MY MAIN MAN...Time to go back to "shorting"?

At least shoping!...Hope I can beat the crowd!!

Mon, 03/26/2012 - 15:11 | 2292023 Everybodys All ...
Everybodys All American's picture

Volume is non existent and this is with HFT running the show. Crazy markets.

Mon, 03/26/2012 - 15:11 | 2292024 q99x2
q99x2's picture

"retail sentiment will lead this market down"

How about I don't hold my breath.

Mon, 03/26/2012 - 15:18 | 2292043 spastic_colon
spastic_colon's picture

any bets consumer confidence is "unexpectedly" up tomorrow?  Ala stock market valuations....timing is everything

Mon, 03/26/2012 - 15:13 | 2292028 CaptainTripps
CaptainTripps's picture

we are in total bubble parabolic mode in the cmgs , pcln, apple's of the world no DOUBT



Mon, 03/26/2012 - 15:14 | 2292030 scatterbrains
scatterbrains's picture

There's your money transfer mechanism revealing itself in 3 huge waves of the fed reserve club printing and pumping stocks so that the 1% club can liquidate into it. As for you tax paying muppets suck it up bitchezz!!

Mon, 03/26/2012 - 15:20 | 2292054 Village Smithy
Village Smithy's picture

Treasuries don't seem to have noticed today's rally, hmm...

Mon, 03/26/2012 - 15:25 | 2292070 junkyardjack
junkyardjack's picture

Well that's because the Chinese realize a good investment when they see one and they want to buy into the US long term, we'll have low interest rates forever.  They can never go back up...

Mon, 03/26/2012 - 15:24 | 2292065 AccreditedEYE
AccreditedEYE's picture

This beta measurement is still missing allocations to "safer" alternative strategies through direct hedge/PE fund allocation. When the equity averages align back to historic means, (and growth in a post-Boomer world is finally realized) the pain in these "hedged" strategies will be brutal. Managers will ask why they EVER strayed from Indexed strategies and swallowed the Managed Alpha load for all it was worth. Total BS...  

Mon, 03/26/2012 - 15:25 | 2292071 slaughterer
slaughterer's picture

Wave 5 is here.

Mon, 03/26/2012 - 15:26 | 2292074 aminorex
aminorex's picture

"aged and incompetent"? I think you meant to say "immature, naive, and incompetent".


Mon, 03/26/2012 - 15:26 | 2292075 oldman
oldman's picture

Who here at ZH truly understands these markets?


Mon, 03/26/2012 - 16:51 | 2292367 Gazooks
Gazooks's picture

 we all do. if you're here you understand that we're all fucked. make the most of it.

Mon, 03/26/2012 - 15:26 | 2292076 Death and Gravity
Death and Gravity's picture

Not for long. Those institutions desperately need something to boost their bottom lines.

Expect a sell-off soon (at the same time at the investment advisors are tellong regular people to add more risk (stocks) to their portfolio now.... sigh).

Mon, 03/26/2012 - 15:28 | 2292081 1835jackson
1835jackson's picture

Everybody in? Then I am out.

Mon, 03/26/2012 - 18:02 | 2292566 JPM Hater001
JPM Hater001's picture

At the pinnacle of Eupohoria is a very short window for you to return to reality just before reality returns to you.

Mon, 03/26/2012 - 15:31 | 2292091 SillySalesmanQu...
SillySalesmanQuestion's picture

I would openly short anything right now except PM'S, but, but, There is NO SHORTING ALLOWED in todays "new normal". GRRRRR...

Mon, 03/26/2012 - 16:29 | 2292300 you enjoy myself
you enjoy myself's picture

that's why, when the Bernanke put finally fails to materialize, the plunge will be catastrophic.  its borderline illegal to actually short anything, and you'd be crazy to do so anyways - your face could easily get ripped off for another SPX 100 points before any sanity returns.  but you'd also be crazy to get long at these levels.  when Bernanke's hands get tied for whatever reason (oil at $140, congress breathing down his neck, etc) there will literally be no one to meet the asks on the way down.

Mon, 03/26/2012 - 15:35 | 2292107 lemarche
lemarche's picture

Just about to give up on shorting indices that trend higher than previous highs, EVERYTIME they give up some of their previous gains... up to the SKY, this Is SUPER BERNANKE !!!

Mon, 03/26/2012 - 15:38 | 2292111 SAME AS IT EVER WAS

And the equity market can do no wrong(untill the .00001% (who control the markets direction)will make more from being short, then pull the rug out from everyone who has given up trying to short and goes long)! Then, the market can do nothing right-even on the best of news!

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