No. of Recommendations: 11
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.
