As we kick of the trading year with the dollar, gold, silver, and stocks all surging, will this trigger a death spiral for stocks in 2017?
Fund Manager Cash Levels Hit New All-Time Low!
From Jason Goepfert at SentimenTrader: “Fund managers are still avoiding cash. In October, mutual funds were holding only 3.1% of their assets in easily-sold, liquid instruments that can quickly be converted to cash to meet investor redemptions. That was a new all-time low. It ticked up a bit in November, but the suggestion is still that if we see unexpected redemptions, such low cash levels would help worsen a selling spiral…
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Fund managers still see no need for cash
According to the latest data from the Investment Company Institute, mutual funds continue to hold a record-low amount of their assets in cash.
The Institute calls this a liquidity ratio, taking the total amount of assets held in readily liquidated assets (like cash) and dividing it by total assets held by the fund. The lower the number, the less cushion the funds have to meet redemption requests. Revised data show that the ratio was an all-time low of 3.1% in October, rising a bit to 3.2% in November (see stunning chart below).
That’s clearly in their favor in a rising market, because cash only acts as a drag on performance, and the funds are suffering enough as it is. We’ve discussed other reasons for the low cash levels over the past several years (low interest rates on deposits, stricter fund mandates against market timing, the rise of index funds, etc), so there are some structural reasons why cash levels are low other than that fund managers might be overly optimistic about their stocks’ prospects.
Selling Spiral For Stocks In 2017?
That doesn’t change the fact that if/when stocks finally do show sustained weakness, fund managers have little wiggle room with meager amounts of cash on hand, and the result can be a selling spiral as they sell positions to meet investor redemptions, which triggers even more redemptions.
This is one of those long-term issues that won’t matter until it does, and waiting for it to matter can blind us to short- and medium- term opportunities. It’s one of those indicators like total assets in stocks versus all financials assets or compared to GDP that are threatening all-time records and have led to severe declines in the past. Something to keep in the back of the mind when gauging the prospects for stocks over the next 2-3 years.”
The chart and commentary above are from SentimenTrader. To try a free 14-day trial of the internationally acclaimed work that Jason Goepfert produces at SentimenTrader simply CLICK HERE.
***To listen to the fascinating KWN audio interview with Stephen Leeb, where he discusses the outlook for 2017, the gold and silver markets, what is really happening with China, and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Silver Spikes To Open The New Year – Here Is A Look At What Will Impact 2017 In A Big Way! CLICK HERE.
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