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3) The Myth Of Cash On The Sidelines
Despite 8-years of a bull market advance, one of the prevailing myths that seeming will not die is that of “cash on the sidelines.” To wit:
“Underpinning gains in both stocks and bonds is $5 trillion of capital that is sitting on the sidelines and serving as a reservoir for buying on weakness. This excess cash acts as a backstop for financial assets, both bonds and equities, because any correction is quickly reversed by investors deploying their excess cash to buy the dip,” Nikolaos Panigirtzoglou, the managing director of global market strategy at JPMorgan, wrote in a client note.
Stop it.
This is the age-old excuse why the current “bull market” rally is set to continue into the indefinite future. The ongoing belief is that at any moment investors are suddenly going to empty bank accounts and pour it into the markets. However, the reality is if they haven’t done it by now after 3-consecutive rounds of Q.E. in the U.S., a 300% advance in the markets, and ongoing global Q.E., exactly what will that catalyst be?
Clifford Asness previously touched on this issue as well.
“There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines.”
Every transaction in the market requires both a buyer and a seller with the only differentiating factor being at what PRICE the transaction occurs. Since this is required for there to be equilibrium in the markets, there can be no “sidelines.”
Furthermore, despite this very salient point, a look at the stock-to-cash ratios also suggest there is very little available buying power for investors current.
https://www.zerohedge.com/news/2019-09-01/breaking-down-bullbear-argument
The end is nigh, brother, the end is nigh!
World markets are like a pie crust stretched across the roof of a volcano!
Fu Manchu is about to pull the lever to the trap door!
Warbucks signals the trusty Punjab to cut the cords of the rope bridge!
Grease the skids! Happy tobogganing!