Cash on the Sidelines

by Larry Levin

How often have you heard or read the phrase "There is so much cash on the sidelines that the stock market is sure to rally - any time now. Wait for it...wait for it..." Uh huh, right. I'm still waiting. This drivel is often repeated to get Joe Six-Pack to buy now, before these fantasy-bucks hit the tape and drive the market higher. The problem is, it never happens.

This is a nonsensical idea to begin with because when you buy, a market maker SELLS; thus there is no gain for the market. However, let's pretend there are reasons why Joe Six-Pack is indeed flush with cash on the sidelines. OK, the first reason doesn't make him flush but rather broke, and yes, on the sidelines: unemployment! Last Friday's monthly jobs data was terrible and this morning's weekly jobless claims were FAR WORSE than the market expected. You'd have to be as dumb as an economist to believe it would get better, but economists are the ones supplying false hope to the market.

The other reason why there "may be" cash on the sidelines by the public (that again makes no difference) is because the public is fleeing this rigged market like rats from a sinking ship. A recent report on money flow into or out of mutual funds shows an unprecedented 14th sequential week of stock market OUTFLOWS by John Q. Public, Betty Bungalow, and Joe Six-Pack.

I guess the average guy is finally sick of being the lamb that is continuously led to slaughter, while the likes of JPM, Goldman, BOA, and others are the diners with the Fed, Treasury, and Congress the waiters.

As mentioned, the old-saw "cash on the sidelines" is usually meant to describe the retail investors, but these days the con artists in the lame stream media are referring to corporations. To wit I must give a witty reply: whatever! Corporations are as "flush with cash" right now as the average dead beat subprime borrower was a few years ago after his 7th cash-out refi. Uh huh, not so much.

For every dollar in hand there is a DEBT to be repaid. You simply cannot call this so-called pile of cash an asset without calling it a liability. Sure, corporations are borrowing at a low cost, but it is borrowing nevertheless, which means it must be repaid. Therefore, the next time you hear someone on television regurgitate this putrid bile, throw your shoe at the TV. No wait, phone the producer instead and call him an idiot for booking that guest. Don't break the TV.

Brett Arends of MarketWatch puts this topic in perspective: "According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s. Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP."

Wow, doesn't that sound good? Bullish, eh? Baaaah!




Previous Day's Trading Room Results:

Trade Date: 8/12/10

E-Mini S&P Trades*
(before fees and commissions):


1) No "Secrets" trades filled today.

2) Algorithm positions (15)

3) “Reading the Tape” positions (2) combined Secret’s, Algo, & “Reading the Tape” total… -1.50



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