Friday, March 16, 2012

Money on the Sidelines

A perpetual bull argument on Wall Street is that "there's so much money on the sidelines" that will continue to push the market higher.  For a while in 2009-2011 this was true: individual investors had fled riskier markets and shoved money into lower risk money market funds and CDs.  The entire thesis of quantitative easing is that by keeping interest rates low, you can force this money back into riskier assets.  As far as this goal is concerned, the two charts below show that the mission has been accomplished.

Retail money market funds made a new multi year low last week.  They fell to a level not seen since 1998.

Similarly, small time deposits at US financial institutions are hitting new multi-decade lows.  They are about to break through a level not seen since 1980, when this time series (as tracked by the Fed) began.

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