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Michael Burry recently reposted a chart from WSJ AM, that I thought was interesting. The chart shows the cash on the “sidelines” as a percentage of the stock market capitalisation. We have been fed a narrative that there is this huge amount of cash on the “sidelines” that will eventually move into stocks, driving them higher. For me that fed a narrative that all of the government money printing has made the currency/cash less valuable and stocks much more valuable in real terms (true) and importantly the process of driving stocks ever higher is not over as there is still so much cash on the “sidelines” (incorrect).

There is currently $7.79 Trillion cash on the sidelines of which $4.71 Trillion is institutional. Sounds like a lot. But it’s only 11% of the stock market capitalisation.

Pre GFC it was 18%, rising to 42% to peak post GFC 2009 as stock prices fell.

For further historical context, in 1998 it was 10%. 12% in 2000 and rising to 24% in 2002, as stocks collapsed post dotcom.

Currently at 11%, consider the Mag 7 capex requirements (2026: $600 Billion; 2027: $700 Billion) makes it even smaller.

Mathematically, the current 11% can become 22% quite easily. A 50% drop in the denominator (market cap) would achieve that. That doesn’t say anything about the value of the stock market, or the Mag 7 component of it, but it appears the argument that there is a lot of cash on the sidelines is not correct. Of course the Government can print money and the cycle continues.

Interestingly, the $4.71 Trillion of institutional cash includes Berkshire Hathaway’s $0.4 Trillion cash, of which $0.3 Trillion is an incredibly large number for one firm to have on the sidelines. Clearly others are much more enthusiastic about stocks currently than Berkshire’s management, with Berkshire with a higher than usual cash allocation and others as a group, essential all in.

Disclosure - these numbers are not verified. Please do correct if you have better information.

Interestingly, the $4.71 Trillion of institutional cash includes Berkshire Hathaway’s $0.4 Trillion cash...

Not to belittle the importance of what you've written, but it struck me as funny: precisely while I was reading your post, Spotify decided to play for me "Everything Counts In Large Amounts" by Depeche Mode.

Unfairly abridged:

The handshake seals the contract
From the contract, there's no turning back
The turning point of a career
...
It's a competitive world
Everything counts in large amounts
Everything counts in large amounts
Everything counts in large amounts
...
The graph on the wall
Tells the story of it all
...

Jim

have seen several charts that indicate absolute level of household equity AND sideline cash are at record levels.
(of course in % terms , the households that own this skew radically to the wealthy)
always assume this is simple asset inflation for all types, with some relative non-peak cyclicals found here and there.

Cash can even burn a hole in a corporate pocket, eh?

We're patient; we've both been invested through all the calamities of the last 30 years, and know those can be eclipsed. I told some folks on another forum that a 25% drop wouldn't surprise me a bit, maybe even larger.

The difference is a sort of patience and not indulging whims and gratification mentality. It seems to be rare. Could Buffett afford any piece of real estate on the planet? Sure...but much of the reason he can buy them, is because he hasn't bought them. Me, not so much...but I could buy any Porsche I want (ah, the 911, how I've love ye for decades...). Maybe one day.

I'm glad my kid has mastered delaying gratification at such a young age, and started in on the IRA eight years earlier in life than I did.

"Michael Burry recently reposted a chart from WSJ AM, that I thought was interesting. The chart shows the cash on the “sidelines” as a percentage of the stock market capitalisation. We have been fed a narrative that there is this huge amount of cash on the “sidelines” that will eventually move into stocks, driving them higher."

I always thought this was silly analysis.

Every time someone moves some of that cash "from the sidelines" and buys stock, there is a seller who is selling that stock and taking the cash and "moving it to the sidelines".

I have to confess, lately I've been harboring perhaps a somewhat similar silly analysis. I've been away from the board and reluctant to post, until I was listening/reading on a regular basis. (So much for good judgement!) ;-)


I didn't have the data/chart the WSJ put together, but I wondered if there is/was a higher level of liquidity in the market, reflecting a general angst with the realignment of trading blocks, the quagmire of tariffs and the regional uncertainty in Eastern Europe, Taiwan/Korea and the Mideast/Persian Gulf regions - a lower level of conviction in a more uncertain world.

I agree with Umm that there is ample cash ready to replace a seller, but I wonder if this environment is currently "weighted" to give us a somewhat rangebound result.


Belated gratitude to all for the steady excellence of your posts and the civility of the board.


CmoreBmore

Every time someone moves some of that cash "from the sidelines" and buys stock, there is a seller who is selling that stock and taking the cash and "moving it to the sidelines".

This is certainly true on the equity markets, where every buyer has a seller. It isn't possible for the world to "sell out" in that sense.

But not true on the cash side...cash can come from, and go to, other destinations. In that sense you could certainly have cash on the sidelines...cash that isn't allocated and only *might* get allocated to equities.

I'm not fond of looking at cash or margin balances relative to market cap, since market caps change with recent prices. I usually track those relative to the aggregate sales of the market, so at least bubbles don't change the result you get.

Jim

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