In the later stages of a bull market advance, the financial media and Wall Street analysts start seeking out rationalizations to support their bullish views. One common refrain is “there are trillions of dollars in cash sitting on the sidelines just waiting to come into the market.”
For example, Barron’s recently penned the following:
“There is record amounts of cash sitting in checking accounts of American households—and for optimistic investors, it’s just one more reason the stock market should keep pushing higher.
Yahoo! Finance also jumped on the claim:
“It should also come as no surprise that there’s never been so much cash sitting on the sidelines — nearly $5 trillion, as a matter of fact. This is significantly above the record $3.8 trillion in cash set back in January 2009 during the financial crisis!”
McKinsey & Co also published the following graphic.
See. There are just tons of “cash on the sidelines” waiting to flow into the market.
Except there isn’t.
The Myth Of Cash On The Sidelines
Despite 10-years of a bull market advance, one of the prevailing myths that seemingly will not die is that of “cash on the sidelines.” To wit:
“A growth bomb”: 3.5$ trillion of excess cash on the sidelines” – Forbes
Please stop it.
Such 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 them into the markets. However, the reality is if they haven’t done it by now, following 4-consecutive rounds of Q.E. in the U.S., a 400% advance in the markets, and ongoing global Q.E., precisely what is it going to take?
But here is the other problem.
For Every Buyer
For every buyer, there MUST be someone willing to sell. As noted by Clifford Asness:
“There are no sidelines. Those saying this seem to envision a seller of stocks moving 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.”