Financial topics

[John]

"You have trillions of dollars on the sidelines," This means there are trillions of dollars in cash such as CDs, money market funds, etc., that are theoretically available to invest in stocks.

"and money managers only have a couple hundred million dollars left," This means mutual fund money managers only have about $200 billion (I think he means, not million) in cash available to put into stocks. This is a very small amount.

"so something has to break soon." This means if the money doesn't start moving off the sidelines and into stocks...

Same thing we've been talking about for 2 weeks here. Wall Street is trying to suck the public back in (Barton Biggs, etc.) so they can dump their stocks off on them, but the public is not in any mood to get screwed for a third time. If the public is smart enough this time to leave Wall Street holding the bag, the thieves will look to the left and look to the right and then they will panic.

And like you said, the shorts that are left aren't budging.

So why can't things just stay about the same, in a "trading range," as they say?
Why does anything have to break at all?

John

[Higgenbotham]

So why can't things just stay about the same, in a "trading range," as they say?
Why does anything have to break at all?

John

For a break to be prevented and prices to hold in a trading range, buyers have to come in from somewhere and they have to be equally as aggressive as the sellers. Judging from mutual fund cash levels, buying won't come from the public. You know they've been counting on that.

Lately, it's my belief that there was safe haven buying of the US market by managers who are looking at risks in Europe. In other words, once the Greece concerns eased, and there was no immediate threat of debt contagion, allocation got shifted from Europe to the US.

I think what that commentator was referring to is the fact that shifts in allocation of existing money can go only so far to relieve any stress if the public doesn't step up and buy at some point. It wouldn't surprise me if he said that managers are now overweight the US compared to Europe whereas in January they probably were not. Therefore, on any downdraft from here, it's unlikely that managers will make more extreme shifts into US equities and he is probably thinking that absent mutual fund inflows from the public there will be nothing left to hold up the market.

Some analysts are making the argument that, while there may not be much buying interest at present, there is no selling to speak of either, so prices can hold steady. That's true, but I think the question is what it would take to generate selling versus what it would take to generate buying. If the bag holders don't see any buying coming in, they will make an excuse to sell at some point. It could be for any reason. Health care passes or it doesn't. Somebody decided to get serious about tariffing Chinese goods.

Just my guess about what was going through the commentator's mind. I would have to agree. It's just history repeating or rhyming, whichever way anyone prefers to think of it. Mutual fund cash levels were at this approximate percentage at the 2007 high.

[John]

http://globaleconomicanalysis.blogspot. ... ll-in.html

[Higgenbotham]

Issues resurfacing on the back pages:

Dubai

http://www.iii.co.uk/news/?type=afxnews ... on=article

Mark to market

http://www.americanbankingnews.com/2010 ... ket-rules/

Bank earnings

http://www.americanbankingnews.com/2010 ... y-nyse-ms/

[jwfid]

Hi John,

In your latest blog entry, you said:

That's why I keep telling people to save cash. If you have a house, then store cash in a hiding place in your basement. Otherwise, put it into an FDIC-insured bank, but be prepared to withdraw it at a moment's notice.

Previously you had recommended buying treasury bills on a treasury direct account. Has this changed?

Thanks for all of the hard work,

Joe

[John]

Dear Joe,

> Previously you had recommended buying treasury bills on a treasury
> direct account. Has this changed?

Perhaps other people have a different opinion, but I personally am
getting nervous about even short-term treasuries. (Recall that I've
always steered people away from long-term treasuries, and recommended
6-12 month Treasury bills.)

Things began changing about six months ago, and they're really
changing rapidly today. The first thing was the situation in Dubai,
which then raised concerns about Greece and the PIIGS and the PIGIES.
And now people are talking more about a US debt default.

This is a significant change in general public/investor attitude. In
the past, there was concern about the stock markets, but sovereign
debt has always been assumed to be safe. Now the anxiety level about
sovereign debt is increasing, and raises the possibility that a panic
might cause even short-term Treasuries to default.

But really, this is a judgment that you have to make yourself. The
best thing to do, if you have enough money, is to diversify, so that
if one thing defaults, then you still have funds elsewhere.

John

[jwfid]

Thanks John,

I have had the same thoughts as you about treasury bills. I feel better knowing if others had thought of it too.

Joe

[jhc811]

Dear Jamie,

> Agreed about cash and my suggestion is go for T-Bills rather than
> FDIC insured deposits (except for some money in FDIC insured
> deposit for everyday bills and basic needs). You can buy T-Bills
> via http://TreasuryDirect.gov Just open your account there, then
> bid for T-Bills et al and the money will transferred from your
> bank to Treasury Direct to buy those T-Bills. T-Bills are dear
> life to US Govt and they are #1 above everything else, including
> Prez, Congress et al. T-Bills and the entire Treasury complex is
> what keeps our US Govt tick.

I just posted some comment about t-bills in the Financial Topics
thread.

http://generationaldynamics.com/forum/v ... 5142#p5142

I really don't know how safe t-bills are these days, with all the
focus on failing sovereign debt. Perhaps you have a different
opinion.

John

Given the choice between cash and T-Bills (as I see that we are in The Great Depression II), cash would make most sense.

It is obviously that it can be too much just to park their liquid net worth into cash for some people (total bills and coins are about $900 billion or so the last time I looked at) so T-Bills are very much logical choice, much more than FDIC in my opinion.

Our 2 Ton Gorilla, the US Govt is obviously very much knee-deep (perhaps chest-level or maybe up to eyeballs into deficit financing (thus the deficit spending) for time being and Treasury market being their main "unlimited" (but there is a limit) ATM machine. So US Govt would be in huge chaos if that ATM machine no longer functions for them. So US Govt would have to treat the holders of T-Bills as the first class citizens above all others.

When the bubble markets eventually burst (they always do eventually (even though it can be much longer than we ever thought possible), it will flock to Treasury market big time and US Govt would use that money back into economy trying to soften the blows one way or another.

The way I see, as we go further into depths of depression, it will be great opp for our govt to extend the average maturity of Treasuries (I think it is 4 years right now) to much later date to greatly reduce the interest bill so that US Govt will have much easier time to pay those interest bill when economy finally have real recovery (it could be 10, 15, 20 or so years into future). So that is why I can see long term Treasuries will rise big time (and yields drop big time).

That is more likely will happen assume if we have long term depression and "hopefully" sane govt officials running US Govt finance/Treasury Dept.

About FDIC, I think everyone knows that our banking system is basically insolvent (especially TBTF banks) and FDIC is basically flat out broke now yet there are trillions and trillions worth of assets write offs waiting to happen. So when everyone finally sees that our banks are insolvent, then US Govt will impose some kind of banking holiday/account freezes (only allow for limited withdraws). So when that happens, most of your money may be locked up in bank while you can freely sell T-Bills for cash anytime.

In Euro, it is strange, I think Euro cash is good alternative (when it gets low like $1.20 or under, maybe good time to buy some Euros for diversification). As for sovereign debt, I think the only European sovereign debt we might be comfortable to buy is short term German bunds.

Jamie

[aedens]

http://www.exchange-rates.org/history/USD/AUD/G/180

http://www.zerohedge.com/article/sovere ... place-hide

I do not tend to agree with this above but who supply's what raws in those Regions
make the decision much easier. Scarce resources and currency are a logical
conclusion when weighed with Political stabilities or lack thereof.

Been thinking some about Higgy's comment below. I am not in the risk Business
and long term as always. It is always risk versus reward.
May see a opportunity soon for some on this arena to purchase metal of per se currency on dip which may come
from metal issue linked above.
http://www.zerohedge.com/article/whistl ... ion-scheme
Caveat Emptor when he chooses to speculate. We will see later this summer if I decide to anything since I have not
lost capital to date with interest bearing accounts.

==============================================================================================
"Can they suck the public in? The inflection point appears to be here."
The other possibility is that bullishness and inflation fears have reached their maximum point. These comments and the comments I quoted from Biggs could indicate the market may have reached its apex or is very close.

Higgenbotham Posts: 338
Joined: Wed Sep 24, 2008 10:28 pm
Private message

[bluebird]

jhc811 said "most of your money may be locked up in bank while you can freely sell T-Bills for cash anytime."

I purchase T-bills via TreasuryDirect which is linked to my bank. If the banks are on 'holiday' or the accounts are frozen, there isn't a way to redeem the T-bills for cash because the money needs to be ACH transferred from T.D. to the bank. I have searched everywhere on T.D., and can not find anyway to get the GOV to send me cash directly. Did I miss something?