I heard some figures thrown around today that more than 4 trillion dollars were on the sidelines, not to mention that most pension funds are underfunded. Where is the money going to go? Stocks? Bonds? Gold? Foreign Currencies? T-Bills? Commodities? Real Estate?
Good question. I think the last time I heard someone talking about it, it was two or three trillion, can't quite remember. But, it does make you wonder. I've been looking at real estate for about a year now-- trying to diversify-- and it seems there is alot of interest there. People are willing to give astronomical amounts for property that I've looked at. I've passed on quite a few deals simply because I can't get a positive cash flow. That said, somebody else steps in front of me and picks up the deal. I guess that just shows how desperate people are.
I've been hearing about billions/trillions on the sidelines just waiting to be invested for a few years now. What is the authenticity of that number? trillions according to whom? Personally I don't believe it. Kind of like the fudged government stats. It makes for a good discussion topic, though. Don't get me wrong, 7. I do enjoy your posts and commentary, this one just pushes a button. Maybe Surf can participate with some of his Wisdom. triple
I think we are about ready for a bull market in ball bearings. That is where I am putting all my money.
John Hussman on the "Money on the sidelines" argument: "When Ricky sells his money market fund to buy stocks, money does not go "into" the stock market. All that happens is that previously issued securities change hands. See, Nicky has to buy the commercial paper that Ricky's money fund liquidates, and the cash that Nicky previously held now goes to Ricky, who uses it to buy shares of stock from Mickey. In the end, Mickey gets the cash that Nicky used to hold, Nicky gets the commercial paper that Ricky used to hold (via the money market fund), and Ricky gets the shares that Mickey used to hold. Money doesn't go into the stock market - it goes through it. After these trades, there is exactly as much money on the "sidelines" as before - exactly the same number of dollars, exactly the same number of shares, and exactly the same amount of commercial paper. Now, if Ricky is more eager to buy stock than Mickey is to sell, the share price increases, which means that Ricky has to sell more of his money market fund to buy the shares than otherwise. Thus, compared to the alternative where Mickey is the eager party (in which case the stock price declines), Nicky ends up with a little more commmercial paper and a little less cash, Ricky ends up with a little bit less in money market funds, and Mickey ends up with a little more of the cash that Nicky used to hold. So even if the stock price changes, it does not follow that there is any more or less money on the sidelines. It's just that the final distribution of existing securities among various individuals may be a bit different, depending on who was the eager party. Regardless, every buy trade that actually executes in the market is matched with a sell." http://hsgfx:reciprocal@www.hussman.com/hussman/members/updates/latest.htm
Yes...and no. In a fractional reserve banking system using fiat money, money can indeed go into the stock market after it is 'created'. That is what we had happen throughout the late 90's and it is why it came to be called a 'bubble'. Easy credit, easy monetary policy created money out of thin air. Along with a belief in 'new era' or 'new economy' it was diverted to the stock market. But to get back on track with the original intention of this thread...I personally believe all the talk about 'side' money to be total bogus whose source are ignorant people like Kudlow who's only intention is to put on rosy coloured glasses in the face of the clearest and most obvious continuing bear market. I first heard it right after the violent swings in early 2000 and have continued to hear it every so often (coincidentally matched with a bear market rally here and there). Balderdash!
Thanks for the little educational tip about Nicky and Ricky. But, as I see it, it doesn't hold water. The 4 trillion is supposedly, the amount of money that has came out of the market since 2000. With the exception of some secondary offerings, new IPO's and some companies going private or out of business, the amount of stock is still roughly the same. The difference is that the majority of the stock is selling at lower prices. For example, I remember trading GLW when it was selling for just under $300 per share, now it trades for a little more than $3. SO, the question is, where did that money go. I'm sure that some people rode it down--not me-- but I would say that the majority of the holders sold at different times on the way down. But, any way you look at it, there is less money tied up in GLW now than there was in 2000. That is just one example, but it is basically true for the entire market. Whether, people put the money in the money market, real estate, gold, t-bills etc., etc., the fact still remains that there is less money in the market, and what is being said about this 4 trillion dollar figure is that at some point this money will find it's way back into the stock market; and that should drive the prices of stock back up.
Baby boomers are generally underfunded for retirement and they know it. I'm thinking they will jump back into stocks at some point to try to rectify that situation, about the time they start to feel like the economy is perking up. Max
some of Terry Laundry's "T Theory" deals with cash build up. I did a search on ET...doesn't seem like anyone has ever had a thread on T-Theory..maybe I'll start one if people have an interest.