Where Is The Cash?

With the recent sell off in the equity markets that began in mid July, one would suspect cash balances would be elevated. As the below chart notes, cash balances as a percentage of all mutual fund assets is near record lows though. Historically, low levels of money market cash have been associated with equity market tops.

From The Blog of HORAN Capital Advisors

On the other hand given the meager interest rates paid on deposits investors might be going elsewhere with their cash. From a strategy perspective, some investors and money managers have moved cash investments to shorter term bond funds in an effort to earn a higher yield. When looking at fund flows into bond funds, this does not seem to be too much of the case though.

From The Blog of HORAN Capital Advisors

Alternatively, maybe investors have moved cash to bank deposits. One reason for doing this would be an effort to at least receive FDIC insurance on their deposits. Also, some investors may be exhibiting cautious behavior due to potential sovereign debt exposure in money market funds. The below chart though doesn't seem to indicate significant deposits have been moved to banks outside of what we would normally expect.

From The Blog of HORAN Capital Advisors

Even margin debt is elevated and stands at pre-Lehman levels.

From The Blog of HORAN Capital Advisors

At the end of the day, it appears the market may be stuck in a trading range. This slow economic growth environment and global deleveraging cycle could be contributing to the lower cash levels. Possibly excess investor cash has been used to paydown debt. Positive technicals do include the MACD and RSI indices as noted below; however, recent market strength has been occurring on lower volume.

From The Blog of HORAN Capital Advisors