Comments on: Margin Debt & Mutual Fund Cash Levels Don’t Matter

by: chaves.ca: Stock Market: Chronicles of a Stock Crash

Thu, 18 Sep 2008 16:28:02 +0000

[…] 2006: Margin debt as a percentage of the S&P market cap has climbed to an all-time high. The previous peak? Early 2000, at the height of the Internet bubble (… and M)utual fund managers are holding about 3.38% less cash than they should be (Traders Narrative) […]

by: Festival of Stocks #51 | Dividends Matter

Mon, 27 Aug 2007 09:05:52 +0000

[…] Margin Debt & Mutual Fund Cash Levels Don’t Matter posted at Trader’s Narrative […]

by: Bary Ritholtz

Fri, 24 Aug 2007 10:44:22 +0000

Jason does nice work —

I have written in the past that increasing margin levels actually are fuel for a bull market, and its not until they spike that it becomes problematic.

As to cash levels, I am not so sure. Yes, indexing is bigger today than it was in the 1960s. And, plenty of mutual fund firms have mandates to have no more than X% cash. But I am not so sure it can be so easily dismissed.

As we have seen on the hedge fund side, once redemptions begin in force, it begets a wave of selling . . .

Thanks for posting the comments

by: Johan

Fri, 24 Aug 2007 08:42:05 +0000

The mutual fund business is in fact vary different from one or two decades ago. Now many more funds have rules that don’t allow them to hold cash of any significant degree. People that invest in stock funds, are not investering in the fund manager’s ability to manage cash, but how he manages stocks.

So I don’t think it’s accurate to compare the data longer than 10 years back.

Have a great weekend!
Johan