What Does It Mean When Investors Sit in Lots of Cash?

Consider this interesting divergence: Despite a plethora of bubble talk, chatter about high CAPE valuations, and market tops, investors have been carrying an awful lot of cash. This is not a new phenomenon, but rather, has been a persistent condition since this most hated rally in Wall St history began.

Before we proceed with the details, let me forewarn you what this column is not: It is not a “Cash on the Sidelines” argument. As we have discussed previously, there is ALWAYS cash on the sidelines. It is a lagging, not leading, indicator. When an investor buys an asset, it means the other side of the trade sells that asset. The cash merely transfers from one account to another. I don’t pay garner much insight from sideline cash until it reaches extreme deviations from historical means in individual investor allocations.

Regardless, it has not escaped my notice that a variety of surveys from major firms has revealed a lot of investment dollars is sitting in cash. Us Trust, Black Rock, UBS and American Express have all made similar discoveries, especially amongst high net worth/high income investors. What makes this so significant is the psychological component to this.


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