775 Hmmmmmmmmm
- Thread starter OVERtheLINE
- Start date
I hope everybody covered their shorts, this bounce is for real and will last for several weeks at least.
An excerpt from http://www.dailyreckoning.com/
...They're already brimming with the stuff. ICI, a mutual
fund industry association, reports that 4.5% to 5% of
stock fund assets are in cash. With total stock fund
assets now at US$3.3 trillion, that 5% in cash amounts
to about US$160 billion. That's it.
To my mind the question is: with US$50 billion to US$70
billion a month getting yanked from mutual funds, how
much more can the industry withstand before it has to
start dumping stock to meet the redemptions? The answer
is 4 months, tops. Then the demand for securities will
drop even more.
The wild card in this scenario is the fabled "fall
rally" flitting about on everyone's lips. As far as the
funds are concerned, there had better be a fall rally
this year. Their very existence is at stake. Of course,
the PR machines are already working on it. The other day
I saw Condoleezza Rice on TV saying that the economy was
much stronger than the numbers indicate. While that may
or may not be true, what makes me curious is why the
National Security Advisor is making speeches about the
economy. Perhaps the potential for a financial meltdown
is more of a national security threat than the
administration would like to let on.
In truth, a fall rally sounds pretty good right about
now. The Fed and the Treasury will not want to see too
many funds fail. And on that basis alone, I wouldn't be
surprised to see stocks get pumped up for the next
couple of months. We may even get a rate cut before the
year is out... and another round of speculative excess
as individual investors seek to get back to zero.
But once the holiday season is done, and another round
of liquidity gets sopped up, and the economy still
hasn't rebounded, and war with Iraq becomes imminent,
and profits still stink, and inflation begins to set in,
well, maybe then we can begin to start talking about a
bottom. Until then, beware.
Regards,
Briton L. Ryle,
for The Daily Reckoning
...They're already brimming with the stuff. ICI, a mutual
fund industry association, reports that 4.5% to 5% of
stock fund assets are in cash. With total stock fund
assets now at US$3.3 trillion, that 5% in cash amounts
to about US$160 billion. That's it.
To my mind the question is: with US$50 billion to US$70
billion a month getting yanked from mutual funds, how
much more can the industry withstand before it has to
start dumping stock to meet the redemptions? The answer
is 4 months, tops. Then the demand for securities will
drop even more.
The wild card in this scenario is the fabled "fall
rally" flitting about on everyone's lips. As far as the
funds are concerned, there had better be a fall rally
this year. Their very existence is at stake. Of course,
the PR machines are already working on it. The other day
I saw Condoleezza Rice on TV saying that the economy was
much stronger than the numbers indicate. While that may
or may not be true, what makes me curious is why the
National Security Advisor is making speeches about the
economy. Perhaps the potential for a financial meltdown
is more of a national security threat than the
administration would like to let on.
In truth, a fall rally sounds pretty good right about
now. The Fed and the Treasury will not want to see too
many funds fail. And on that basis alone, I wouldn't be
surprised to see stocks get pumped up for the next
couple of months. We may even get a rate cut before the
year is out... and another round of speculative excess
as individual investors seek to get back to zero.
But once the holiday season is done, and another round
of liquidity gets sopped up, and the economy still
hasn't rebounded, and war with Iraq becomes imminent,
and profits still stink, and inflation begins to set in,
well, maybe then we can begin to start talking about a
bottom. Until then, beware.
Regards,
Briton L. Ryle,
for The Daily Reckoning