4 replies to this topic

[nimblebear]

WATCH OUT BELOW (February 6, 2007): At the present time, the percentage of cash in U.S. equity mutual funds has fallen to its lowest level ever recorded, which is less than 3.8% in most reliable surveys. The reason that cash is so important is that on any day when there are more redemptions from any mutual fund than new deposits into the fund, such redemptions are paid from this cash. In that way, a mutual fund manager hopefully is never forced to sell the actual stocks or other securities that the fund owns.

Since mutual fund managers are always highly conscious of their net annual returns, which they often display boldly in advertising both in print media and on the internet, they wish to have as little cash as possible during a market upturn, so that they are able to outperform their competitors. The recent all-time record number of consecutive trading days without a 2% decline in the S&P 500, as well as extreme complacency among investors worldwide, has encouraged mutual fund managers to continue to reduce their cash, since it serves as a drag on performance.

More...

http://www.truecontrarian.com/

and

With the fewest people of participants in the financial markets expecting a worldwide market correction at this time, combined with the lowest level of cash being held by fund managers in anticipation of such a downturn, we have the ideal recipe for what is likely to be a punishing worldwide equity market pullback in 2007.

[dcengr]

Yes.. but from what levels? 20% correction from 20% higher doesn't help. Record low fund cash levels, record futures positions, record margin debt, record low VIX, you name it. But daddy, its still going up.

[nimblebear]

Yes.. but from what levels? 20% correction from 20% higher doesn't help.

Record low fund cash levels, record futures positions, record margin debt, record low VIX, you name it.

But daddy, its still going up.

Yep, its still going up. I can't even fathom how in the world this market could correct right now given the number of new highs being set daily on NYSE, etc. I'm taking a defensive posture with my moola though.
As someone once said: "What you don't see can't hurt ya." But someone driving a Hum-vee In Iraq and not seeing the IED before it shredded his body would tend to argue with that adage. Basically our troops know the bombs are there, but they go ahead with their mission anyway. Its called risk. If you think the return you will get is sufficient such that your premium for risk is being amply rewarded, then you go ahead anyway.

Some would argue that investors are being amply rewarded for the risk thay are taking in many asset classes. I can't see the risks, but someone else does. If I can't see it, then its not worth the risk.

Yes.. but from what levels? 20% correction from 20% higher doesn't help.

Record low fund cash levels, record futures positions, record margin debt, record low VIX, you name it.

But daddy, its still going up.

Yep, its still going up. I can't even fathom how in the world this market could correct right now given the number of new highs being set daily on NYSE, etc. I'm taking a defensive posture with my moola though.
As someone once said: "What you don't see can't hurt ya." But someone driving a Hum-vee In Iraq and not seeing the IED before it shredded his body would tend to argue with that adage. Basically our troops know the bombs are there, but they go ahead with their mission anyway. Its called risk. If you think the return you will get is sufficient such that your premium for risk is being amply rewarded, then you go ahead anyway.

Some would argue that investors are (should have been aren't) being amply rewarded for the risk thay are taking in many asset classes. I can't see the risks, but someone else does. If I can't see it, then its not worth the risk.

[OEXCHAOS]

Mutual fund cash is a miserable indicator any more. Why? They can borrow if they need money and then liquidate as they see fit. Additionally, I'm not sure how much trading of funds takes place any more. Real traders have instruments at their disposal that want their business and which are more efficient than the typical mutual fund. Kincheloe believes too that many of these funds have hedges on, in lieu of cash, which keeps the consultants happy and let's them sleep a bit better. It's not like a short position in the Q's or a long in the QLD is going to be hard to get into or out of. Mark

[pdx5]

Yes, who needs stinking cash when credit is flowing like water after after Katrina demolished the 100 year old sub-standard levees.