JPM Says Sideline Cash Is There For Good Reason ~ The Risk Averse Alert

Wednesday, October 14, 2009

JPM Says Sideline Cash Is There For Good Reason

Who are these money managers with hoards of cash sitting on the sidelines waiting for a pullback? And how does this group stack up to those money managers whose even greater hoards of invested capital took a bath last year?

I have the sneaking suspicion the former group is dwarfed by the latter. That's why volume continues contracting as stocks rise. Money on the sidelines is there for a reason (much as was the case in May '08 when the same $3.5 trillion was "wasting away" in cash). And those money managers who essentially have been all in (and will be forever) surely are smarting from the greater imprudence their position has relegated their perceived capacity for making sound financial decisions.

Fool me once, shame on you. Fool me twice, shame on me. It is last year's majority of money managers turned into burnt toast who presently are making equity dead money.

Besides, better prospects have moved up the accounting food chain out of necessity, where hot, and perceived safer, corporate bonds are being chased with abandon (apparently but another bubble being blown to postpone the inevitable day of reckoning, and in the process further compromising security in the bond market — a trend that has been going strong for decades now, as the number of companies whose bonds are AAA-rated can be counted on one hand I believe).

Why would sideline cash be looking to jump in when a solid majority of shell shocked money managers still, after a 60% advance off bottom in a mere matter of months, are ill-prepared to press their bets? In other words, sideline cash has every reason to fear it will be the last man in, and this never is a good position to take in the stock market.

And why would sideline cash be looking to jump in when JP Morgan Chase is adding to its loss reserves? Does this not beg the question among other financial institutions: are loss reserves enough?

(Per JPM marking up by $400 million certain assets on its balance sheet, one wonders, given the small amount, whether this is a trial balloon and just how soon it might prove to be made of lead.)


No point reiterating noteworthy technical weakness that only continues growing. Every panel still reads, "Going, going" and projects an approaching day when, finally, top will be in and stocks will be gone. Until then, any further upside remaining should be rather limited.

Fast Money
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