Where did all the cash go?
The awesome chart below was created by Doug Short, reflecting that a “ton of cash has disappeared in investors pockets this past month!”
CLICK ON CHART TO ENLARGE
Negative Net Worth = “Free Credit Cash accounts (cash available to spend/invest quickly) minus Margin Debt.” The chart Doug put together reflects a rapid decline in available cash/net worth this past month.
As you can see very few times has “Negative Net Worth” reached the current level over the past 13 years and each time it did, the S&P 500 was closer to a high than a low.
Will it be different this time?
Yet all this cash could have been used for buying puts and the margin for shorting !
A fully invested position is obviously the top of a market, there is little cash/credit left to buy with. But in this new world of Fed finance we must recall that the short run limits of cash are not what they used to be. At 85 Billion a month the Fed is feeding the banks with a trillion a year in new capital. Of course, the banks can not invest all of that, it is “reserve holdings”, but the wealth effect of the reserves makes the banks more credit worthy to third parties (shadow bankers) – so the banks invest. My Point? The limits of your chart are misleading until the you know the rest of the story. It appears this is NOT a limit condition the accounting conclusion notwithstanding.