April 16, 2009, 5:00 am

Markets Need Some Juice? There Are plenty of Liquidity Out There!

by: The Financial Blogger    Category: Investment, Market and Risk
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Working in a bank brings a lot of advantages. One of my favourite is that we have access to so much information regarding stock markets and the economy in general. While we still don’t know when the market bottom will be hit (I told you, we will know the market bottom at the end of 2010…. Only graphs can tell us about the bottom of a market!), there are really good sign of what promise to be a great return in the stock market:


I have received some very interesting information about the amount stack in monetary funds compared to the level of money invested in mutual funds on the US market. Those figures are coming from the Investment Company Institute (ICI) and they are as of February 2009:

money-market-fund

What you see on the 2 graph above is the level of net asset of US money market fund vs equity fund (on the left). The Blue line is obviously the money invested in the money market funds as it keeps increasing for the past 4 years.

On your right, you see the percentage of all the money invested in mutual funds that is investment in money market fund. So the 3.9 trillion dollar invested in money market fund represents 43% of all the money invested in the US mutual fund market. This is actually the highest rate since 1991.

While we have no clue when this money will be back in the markets, I can tell you that when it comes back (obviously not all of it will be invested), it will pushes markets in the double digit returns. We will still not recover our loss from 2008 within a single year. However, if you have money sitting somewhere, this is definitely the best moment to go ahead and invest.

Not convinced yet? Here’s another graph of the Dow Jones Index:

dow-jones-index

This shows that there is an inverse relationship between the level of money invested in the money market and the performance of the Dow Jones Index. Therefore, the day that the money will come back into the market, you can be assured that the Dow Jones and all the other indexes will jump.

This is the nature of the market: a rollercoaster psychopath 😉

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Comments

If the level of deposits is any indication, at my bank our customers are sitting on tons of cash. We’ve seen a big spike while the brokerage business has seen an increase in sell orders.

We’ll see what happens with that over the next couple of months.

This is a cool post. I like this information that might be difficult for most to obtain, but is simple to understand. Give us some more bank insider information!

This is one thing I really like about my job; it feeds my blog! hahaha!