The Negativity Bubble
I keep hearing people say that there is "too much negativity out there."
Investors should understand that the way this is typically presented, it is merely an opinion. ("I think, I feel, I believe").
However, I prefer quantitative metrics -- hard numbers -- to feelings/opinions. Dougie Kass sends along these two data points:
• The cash positions in mutual funds stand at 3.8%, slightly below the 3.9% low established in 1972.
• Margin debt as a percentage of the S&P market cap has climbed to 2.4%, an all-time high. The previous peak? Early 2000, at the height of the Internet bubble.
Data always trumps anecdotal evidence.
~~~
What's in your wallet sentiment model?
Thursday, August 16, 2007 | 10:26 AM | Permalink
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» The Rumor BubbleBlow-ups, Meltdowns, Emergency Announcements, Warnings: Wall Street Rumor Drunk From Sipping On The Product of The Grapevine from DealBreaker.com
Today might not only be one of the most violently volatile days on the market. It’s also one of the most rumor swept. We’re hearing more rumors with more names attached than anyone could possibly check or even keep up... [Read More]
Tracked on Aug 16, 2007 3:13:31 PM
» Margin Debt Mutual Fund Cash Levels Dont Matter from Trader's Narrative
Last Thursday, Barry Ritholtz wrote in The Big Picture about two data points sent in by Doug Kass:
• The cash positions in mutual funds stand at 3.8%, slightly below the 3.9% low established in 1972.
• Margin debt as a percentage of the S... [Read More]
Tracked on Aug 23, 2007 11:00:18 PM
Comments
and SPY making generational double top. mama.
Posted by: scorpio | Aug 16, 2007 10:28:36 AM
Well boys and girls, this is it...
If you haven't already raised your cash, it's too late. Just hang on tight...
Posted by: Pool Shark | Aug 16, 2007 10:32:50 AM
"too much negativity out there."
this reminds me of the bush/cheney/rumsfeld junta's feelings about the media after the "mission accomplished" debacle.
but you're right. those numbers showed that sentiment was the *complete* opposite not too long ago.
Posted by: m3 | Aug 16, 2007 10:37:49 AM
"bad boys bad boys, whatch gonna do?
watcha gonna do when they come for you?"
Posted by: Bob A | Aug 16, 2007 10:37:59 AM
For us newbies, can you explain the significance of the low cash reserves in mutual funds? I'm assuming that what you are suggesting is that mutual fund managers got caught up in the go-go market and didn't want cash on hand, and that makes them more vulnerable to the stock market fall and contributes to the liquidity crisis. But I have a sense I'm perhaps missing some other significance of this.
Tom
Posted by: Tom | Aug 16, 2007 10:39:52 AM
Low cash in Mutual funds: Panic means Redemptions. Redemptions require cash. Cash requires selling stocks. Selling stocks under pressure means lower stock prices.
Posted by: Bob A | Aug 16, 2007 10:44:56 AM
What did everyone expect? There's nothing conservative or honest in our culture anymore. Not politics, not economics or finance, not business practices. When the government says to put your retirement funds into the stock market, it's time to get out (3 years ago). Thank god my grandaddy pounded that message home at every chance he got. He was a wise, honest, wealthy, conservative man. Got rich during the depression. He's up there laughing his ass off. I miss him.
I wish I could say "I told you so", but nobody would have listened, anyway. Never let your grandchildren forget how we got here.
Posted by: Marcus Aurelius | Aug 16, 2007 10:46:08 AM
Bob A,
It's not just stocks...
Gold has been holding up pretty well the last couple of weeks, but about a half-hour ago, somebody dumped a TON of it; price dropped $10.00 in a matter of minutes.
Somebody out there needed cash REAL badly.
Posted by: Pool Shark | Aug 16, 2007 10:50:21 AM
Pop Quiz!
How many people are going to rush out and buy a house if the Fed lowers .5%???
Posted by: Bob A | Aug 16, 2007 10:52:38 AM
Barry:
Could you post your thoughts on the collapsing IRX. To me its a little worrisome to see all of that liquidity locked up in the 90 day.
Want to hear what you think.
Posted by: Karl Smith | Aug 16, 2007 10:53:05 AM
everyone is unwinding assets of all classes in order to meet requirements, margin calls, or just to play it safe and hold cash reserves.
expect many a hedge funds to go under in near future. Not surprising, but still yet to come out and that news will lead to more days like the past week.
fun! My only short position is up right now. Sweet Wells Fargo, you rock!
Posted by: UrbanDigs | Aug 16, 2007 10:57:30 AM
Bob A,
And of those who would be willing to run out and buy a house; how many would actually be able to qualify given the tighter credit standards of late?
Posted by: Pool Shark | Aug 16, 2007 10:59:21 AM
lowering rates does'nt help the worthless loans on the books. Until someone or something addresses that then whatever is done is akin to a band-aid on a cancer wound.
unless all the restrictions that have been added by the lenders in the last several weeks go away...rate cuts will do nothing about stimulating home sales. All it will do is put more money in the brokers pocket so that they can bloat up all those rapidly deteriorating "assets"- or whatever they call worthless loans nowadays.
Bob- I would not think of buying anything until there is some subtraction of existing inventories. Not going to happen until 09 at the earliest.
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 11:00:07 AM
It's remarkable how this market is behaving as the mirror image of the upleg that began in July '06.
During the ramp up, everyone kept waiting for a pullback, which never materialized, so many people missed the move. During this downleg, it's been straight down. People have been waiting for a throwback rally to sell into and it never materializes.
Posted by: Groty | Aug 16, 2007 11:05:37 AM
I like to look at things from the laboring guy through the skilled labor guy. When those people lose their jobs we are all screwed. You cannot lay off half or more of the construction labor in this country and maintain a strong economy. The elite Ph.Ds and folks with multiple masters degrees don't have a clue. None have had their hands dirty since their maids spilled caviar on their Armini smlking jackets. You guys who don't see the disconnect between the political/media class and the rest of us will win. The country will lose. Note that every one of the hot shot stock guys on the tube this AM thought the "thing" will shake out over the next few "months." Are we all crazy?
Posted by: Howard Veit | Aug 16, 2007 11:06:52 AM
Where's bottom for the Dow? Around 12000 which would be about a 15% correction and mirror what's been happening in Europe. As long as the corpses keep floating to the surface this turbulence is not going to stop. How long does the gas still inflate the cadavers? 6-8 months. I still don't see much willingness on the part of the financial institutions big and small to come clean. At the end of the day that's the only way this going to slow. Ben can put as much cash into the market as he likes if people aren't willing to lend it, then not much happens.
Posted by: john | Aug 16, 2007 11:17:22 AM
"What's in your sentiment model?"
At this point I have a solid "I don't know" rating.
A good chunk of this down-turn is carry driven (so was the way up) and the sentiment in FX is "sell on rallies". If you can't sit out, look for specific companies core strengths and weaknesses. Volatility makes index play right now too risky to my tastes.
Posted by: mhm | Aug 16, 2007 11:23:39 AM
Whilst tempting to think that panic is the driving force of the markets and paradoxically reassuring to see a healthy reaction to facts. They are few outdated observations which are still valid and puzzling:
2005/2006
Banks were manipulating long term interest rates on the downside for the European /US/Japan bonds.
2006/2007
Banks and associates were manipulating equities markets on the upside and the theoretical values were more than achieved.
April 2007
Speculative funds turned net sellers of the SP and yen purchasers whilst they were largely net buyers of the SP during 2006/2007H1
The economic background did not justify these markets behaviours.
The dollar is appreciating the Yen is rebalanced in accordance with the inflation differential with the rest of the world and in accordance with Japan current account surplus.
As an example among others
May 11 - Financial Times (David Oakley and Anuj Gangaharin): "Exchange-traded equity derivatives volumes surged to record levels in the first four months of the year in Europe as hedge funds and 'black box' traders increasingly sought new ways to boost returns. Equity derivatives, one of the fastest-growing financial products, are also being used more by traditional funds, such as pension and life companies, as they take advantage of European regulations that give them more freedom to invest. Equity derivative volumes rose by 22 per cent, with 127m contracts traded in the first four months of the year on Euronext Liffe, the international derivatives exchange
Sorry it is difficult to adhere to the theory of spontaneous markets neither to believe that all the recent events were unknown to the markets actors and manipulators and shall we occult the past M&A prices?
Posted by: Philippe | Aug 16, 2007 11:25:49 AM
i think we've got to take out at least the rally off the '06 lows, so down to 125-130 for SPY. the whole year since then to highs was predicated on leverage and the private-equity buyout premium of 25%, both of which are no longer operable.
Posted by: scorpio | Aug 16, 2007 11:28:19 AM
Everything's getting slammed right now. Look at the materials sector - XLB - and the stocks in that sector. Lots of unwinding of positions to raise cash. And it's no wonder. When the Bear funds went belly up, I read that, at one point, they were levered 80:1!
Posted by: Peter Davis | Aug 16, 2007 11:32:09 AM
We can look at margin debt, but we should look at short interest too, for a fuller picture. How is that doing?
Posted by: David Merkel | Aug 16, 2007 11:32:23 AM
U.S. money market mutual fund assets rose to a record $2.68 trillion in the latest week, the Money Fund Report said on Wednesday.
Taxable assets jumped $41 billion to a record $2.23 trillion, while tax-free assets rose $29 billion to a record $447 billion.
Posted by: Fred | Aug 16, 2007 11:35:14 AM
I like quantitative metrics too, but wouldn't capitulation by the reporto-cheerleaders on CNBC indicate a bottom for the stock market?
~~~
BR: I don't know -- what data do you have supporting that assertion?
Posted by: John F. | Aug 16, 2007 11:37:39 AM
My prediction is that all markets will show a net loss for the Bush/Cheney years.
The S&P only needs to shed another 60 points and it is down for the entire Bush administration. The Dow has further to go, because the prices of big oil are holding it up.
What isn't factored into this (as near as I can tell) is the effect of one or both of:
Another hurricane hitting oil and gas on the gulf coast and/or
Darth Cheney ordering an attack on Iran. That would be the big one.
!
Posted by: anon | Aug 16, 2007 11:40:59 AM
And of those who would be willing to run out and buy a house; how many would actually be able to qualify given the tighter credit standards of late?
This potential house buyer is waiting until I can buy a house with my T-bill/cash holdings plus a mortgage of maybe 2-3x annual gross income. That's a long way down from current prices in my city.
Posted by: Mike G | Aug 16, 2007 11:43:17 AM
