Cash on the sidelines impact ?

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skor99
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Cash on the sidelines impact ?

Post by skor99 » Wed Oct 11, 2017 7:40 am

I was reading an article on cnbc and noticed the following -
One of the greatest problems we still have in the world is how much money is sitting on the sideline," Fink said. "Even in places like Japan, there's $5 trillion in cash earning negative return. In Germany 72 percent of savings are in bank accounts. We're seeing some of that unlocked, we're seeing people put some of that money to work."

What does this mean in terms of stock prices and markets? In my view this is actually a good thing as it means that a lot of cash is waiting to be invested, then why is it called a problem ?

livesoft
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Re: Cash on the sidelines impact ?

Post by livesoft » Wed Oct 11, 2017 7:47 am

C'mon! Do you read everything you believe? Some people do. Others believe everything they read.

Many people are deathly afraid of investing in stock markets and they will not move their cash no matter what. That is, there is ALWAYS plenty of cash sitting on the sidelines. Always. So I think it means nothing. Believe it.
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skor99
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Re: Cash on the sidelines impact ?

Post by skor99 » Wed Oct 11, 2017 8:01 am

The insinuation in the article was that this could be positive for the markets, but since I do not only read what I believe and don't believe everything I read, hence the question :-)

Crisium
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Re: Cash on the sidelines impact ?

Post by Crisium » Wed Oct 11, 2017 8:19 am

How much cash was on the sidelines in early 2000 or 2007?

dh
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Re: Cash on the sidelines impact ?

Post by dh » Wed Oct 11, 2017 8:33 am

"Cash on the sidelines" seems like another theory to predict the movement of markets (right up there with whether the AFC or NFC wins the super bowl). There will most likely be even more "cash on the sidelines" ten years from now. Does that mean the markets moved up, down, or sideways? Your guess is as good as mine. Stay the course my friend. :sharebeer

CULater
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Re: Cash on the sidelines impact ?

Post by CULater » Thu Oct 12, 2017 10:48 am

There is no such thing as "cash on the sidelines" unless you mean the cash that is always there and doesn't change in quantity. The COTS metaphor imagines that the amount of cash available expands and shrinks, which is nuts. There is always the same amount of "cash" available and somebody has to own it. Fantasy is not a good investment methodology.
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Portfolio7
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Re: Cash on the sidelines impact ?

Post by Portfolio7 » Thu Oct 12, 2017 11:40 am

CULater wrote:
Thu Oct 12, 2017 10:48 am
There is no such thing as "cash on the sidelines" unless you mean the cash that is always there and doesn't change in quantity. The COTS metaphor imagines that the amount of cash available expands and shrinks, which is nuts. There is always the same amount of "cash" available and somebody has to own it. Fantasy is not a good investment methodology.
Agreed, though I've long been slightly confused by this. On an individual basis, cash can be on the sidelines, and you as an individual may trade it for an asset and 'put it to work'. From the point of view of the wider economy, it's just an exchange, cash and stocks trade hands but the seller now holds the cash that you just 'put to work', and you hold the equities that he 'cashed out'. The sum of assets for the two of you has not changed. (not sure if there is a better way to say that). This aspect of the discussion seems pretty straightforward. Maybe I should just stop there.... but I can't:

I think the confusion I feel stems from demand and supply. If demand for cash declines while demand for stocks increases (dot.com era, let's say), then the nominal value of stocks may increase while the number of shares stays the same... at least until more shares are issued. In either case, I admit the amount of cash extant is unchanged (except as lending activity changes.) Thus, I agree in principle - but I admit this simple idea makes me squirm slightly, and I think that's because, at least over time, the number of shares extant and their valuation can change relative to cash, so one might say there are limits on the COTS criticism.

To summarize, there is no COTS, assets simply trade ownership. However, how do you view an IPO in that context? It's asset creation from a fiscal sense (though I suppose one could argue the value was there before and belonged to the owner, who simply unlocked the value and put it up for sale.... but then I start thinking about perception and value and go down the dang rathole where I lose perspective.) I think I'm rambling a bit, and maybe just not thinking clearly. If anyone has a more direct way of thinking about the wider context, I'd appreciate some guidance.
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thangngo
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Re: Cash on the sidelines impact ?

Post by thangngo » Thu Oct 12, 2017 11:53 am

skor99 wrote:
Wed Oct 11, 2017 7:40 am
I was reading an article on cnbc and noticed the following -
One of the greatest problems we still have in the world is how much money is sitting on the sideline," Fink said. "Even in places like Japan, there's $5 trillion in cash earning negative return. In Germany 72 percent of savings are in bank accounts. We're seeing some of that unlocked, we're seeing people put some of that money to work."

What does this mean in terms of stock prices and markets? In my view this is actually a good thing as it means that a lot of cash is waiting to be invested, then why is it called a problem ?
I'm curious where they come up with those figures.

Cash is valuable when you need it, i.e. when you're out of the work force or retired. So I don't think we should count these type of cash as sitting on the sideline. It's impossible to know how much cash available to invest in a country. Those articles you read have its own agenda if anything.

betablocker
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Re: Cash on the sidelines impact ?

Post by betablocker » Thu Oct 12, 2017 12:18 pm

Portfolio7 wrote:
Thu Oct 12, 2017 11:40 am
CULater wrote:
Thu Oct 12, 2017 10:48 am
There is no such thing as "cash on the sidelines" unless you mean the cash that is always there and doesn't change in quantity. The COTS metaphor imagines that the amount of cash available expands and shrinks, which is nuts. There is always the same amount of "cash" available and somebody has to own it. Fantasy is not a good investment methodology.
Agreed, though I've long been slightly confused by this. On an individual basis, cash can be on the sidelines, and you as an individual may trade it for an asset and 'put it to work'. From the point of view of the wider economy, it's just an exchange, cash and stocks trade hands but the seller now holds the cash that you just 'put to work', and you hold the equities that he 'cashed out'. The sum of assets for the two of you has not changed. (not sure if there is a better way to say that). This aspect of the discussion seems pretty straightforward. Maybe I should just stop there.... but I can't:

I think the confusion I feel stems from demand and supply. If demand for cash declines while demand for stocks increases (dot.com era, let's say), then the nominal value of stocks may increase while the number of shares stays the same... at least until more shares are issued. In either case, I admit the amount of cash extant is unchanged (except as lending activity changes.) Thus, I agree in principle - but I admit this simple idea makes me squirm slightly, and I think that's because, at least over time, the number of shares extant and their valuation can change relative to cash, so one might say there are limits on the COTS criticism.

To summarize, there is no COTS, assets simply trade ownership. However, how do you view an IPO in that context? It's asset creation from a fiscal sense (though I suppose one could argue the value was there before and belonged to the owner, who simply unlocked the value and put it up for sale.... but then I start thinking about perception and value and go down the dang rathole where I lose perspective.) I think I'm rambling a bit, and maybe just not thinking clearly. If anyone has a more direct way of thinking about the wider context, I'd appreciate some guidance.
The only cash on the sidelines is the potential cash the Fed can create by depositing it into banks' accounts. An IPO is simply an exchange of ownership of the same asset(s). A private owner sold to a public one but the share they sold has a claim to the same assets. If you issue additional shares then you just dilute the shareholders claim to the same assets.

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Portfolio7
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Re: Cash on the sidelines impact ?

Post by Portfolio7 » Thu Oct 12, 2017 5:09 pm

betablocker wrote:
Thu Oct 12, 2017 12:18 pm
The only cash on the sidelines is the potential cash the Fed can create by depositing it into banks' accounts. An IPO is simply an exchange of ownership of the same asset(s). A private owner sold to a public one but the share they sold has a claim to the same assets. If you issue additional shares then you just dilute the shareholders claim to the same assets.
Makes sense, should have followed the original logic... thx.
An investment in knowledge pays the best interest.

lotusflower
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Re: Cash on the sidelines impact ?

Post by lotusflower » Fri Oct 13, 2017 10:35 am

Cash on the sidelines is a HUGE problem... for brokers and other salespeople who are missing out on that action.

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Sandtrap
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Re: Cash on the sidelines impact ?

Post by Sandtrap » Fri Oct 13, 2017 11:02 am

skor99 wrote:
Wed Oct 11, 2017 7:40 am
I was reading an article on cnbc and noticed the following -
One of the greatest problems we still have in the world is how much money is sitting on the sideline," Fink said. "Even in places like Japan, there's $5 trillion in cash earning negative return. In Germany 72 percent of savings are in bank accounts. We're seeing some of that unlocked, we're seeing people put some of that money to work."

What does this mean in terms of stock prices and markets? In my view this is actually a good thing as it means that a lot of cash is waiting to be invested, then why is it called a problem ?
cnbc ?
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flyingaway
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Re: Cash on the sidelines impact ?

Post by flyingaway » Fri Oct 13, 2017 11:05 am

My parents never bought any stocks, all in cash for their entire life.

(I have to add that they never had much in savings.)

flyingaway
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Re: Cash on the sidelines impact ?

Post by flyingaway » Fri Oct 13, 2017 11:13 am

Don't expect those people in Japan and Germany to buy stocks any time soon. With a good pension and health system, who needs to invest?

dk240t
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Re: Cash on the sidelines impact ?

Post by dk240t » Fri Oct 13, 2017 12:02 pm

skor99 wrote:
Wed Oct 11, 2017 7:40 am
I was reading an article on cnbc and noticed the following -
One of the greatest problems we still have in the world is how much money is sitting on the sideline," Fink said. "Even in places like Japan, there's $5 trillion in cash earning negative return. In Germany 72 percent of savings are in bank accounts. We're seeing some of that unlocked, we're seeing people put some of that money to work."

What does this mean in terms of stock prices and markets? In my view this is actually a good thing as it means that a lot of cash is waiting to be invested, then why is it called a problem ?
Every security is held until retired. Including cash.

Cash on the sidelines is totally bogus.

If I buy stock, someone has to sell it, my cash becomes their cash, their stock becomes my stock. How does more cash get into stocks? Even if companies issue more stocks, my cash becomes their cash and then I have newly created stock - the cash still exists and one of these crap articles will still call it cash on the sidelines.

"Cash on the sidelines" = "Monetary instruments created by Fed". Cash on sidelines is at a record high because cash in existence is at a record high. Where is it to go?

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