Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

How to Track Sidelined Cash As it Moves Back into the Stock Market

Stock-Markets / Stock Markets 2010 Aug 19, 2010 - 11:05 AM GMT

By: Investment_U

Stock-Markets

Best Financial Markets Analysis ArticleLouis Basenese writes: Second quarter earnings season is officially over – and almost 80% of the companies in the S&P 500 beat their earnings expectations.

You’d think that would be enough to propel the markets higher. But not so fast.


Investors remain confused. Forget solid corporate profit growth. They don’t know what to make of persistent European debt woes, a floundering real estate market, looming tax hikes, or stubbornly high unemployment.

In short, they’re more uncertain about the future than Brett Favre. And as you know, the stock market hates uncertainty…

That uncertainty and confusion is manifesting itself in the form of increased market volatility.

But what’ happening beneath the surface is more consequential and potentially profitable…

The Precarious Plight of Too Much Cash

Is there such a thing as too much cash?

In this case, yes.

  • According to Moody’s, U.S. non-financial companies are sitting on $1.84 trillion in cash. As a percentage of total assets, that represents the highest amount in over half a century.
  • Hedge funds are holding 24% of their assets in cash (or roughly $450 million).
  • American households have just under $1 trillion parked in money-market funds, according to the Investment Company Institute.

I’m sorry… but with cash yielding next to nothing, such passivity cannot persist. Eventually, people need to put the money to work.

Or as Credit Suisse recently opined in a 200-page “brief” on the markets: “Cash in a difficult time is like blubber on a seal: protecting the animal during the harshness of winter, but turning bothersome in spring and summer.”

With the worst of the recession behind us, we’re definitely entering the extremely “bothersome” period. And the situation is the most bothersome for hedge fund managers…

These Guys Need to Start Spending Like Sailors on Shore Leave

If these guys don’t put their cash to work and try to earn a profit on it, investors will say “sayonara” and withdraw their funds. After all, you don’t pay a hedge fund manager a 2% management fee and a 20% performance fee to act like a certificate of deposit.

And since half of the 2,000 funds tracked by Hedge Fund Research’s composite index are still below their high-water mark, these managers won’t get to collect that juicy 20% performance fee if they don’t deliver serious profits.

And there’s just no way they can hit a new high-water mark with 24% of their assets in cash-based investments. In addition, I can assure you that hedge fund managers won’t be content earning a 2% management fee indefinitely.

The good news is this: as they inevitably put their cash to work, we can profit from it…

It’s Time to Start Tracking 13-D Filings

I expect the most aggressive hedge fund managers to put their cash to work and become “activists.”

By that, I mean they’ll take a 5% (or more) stake in specific companies and start demanding aggressive changes. This includes things like seats on the Board of Directors… ditching the company’s top brass… the payment of special one-time dividends… or even the outright sale of the company.

In other words, they’ll do anything and everything to unlock value, stat!

Research proves that it’s an effective strategy, too. The latest academic studies, including the most recent one from New York University, finds that stocks targeted by activists enjoy an average 18% gain.

So how do we profit from these activist situations? Simple…

We follow the lead of the most aggressive hedge fund managers. You see, the SEC requires these guys to disclose when they take a 5% (or more) stake in publicly traded companies within 10 days.

And they do so by filing a form 13-D, which you can easily track for free on the SEC’s website.

But I prefer to visit Barron’s website. Every week, it provides a quick rundown on the latest filings, including a brief summary of the details surrounding each company.

You need to be a Barron’s subscriber to get this information, but as far as I’m concerned, it’s a worthwhile investment if you want to uncover stocks with the potential to return 18% (or more). Especially since the S&P 500 is down 1% this year.

Bottom Line: Executives, hedge funds and everyday investors – almost the entire investment and corporate community – are gun shy. They’re all stockpiling cash and if you’re not tracking the moves of the most aggressive hedge fund managers already, you need to be. It’s an easy way to determine when all the cash on the sidelines is being put back to work – and how to profit from the moves. So don’t delay.

Good investing,

Louis Basenese

P.S: You can join me in tracking down the investments that are set to profit as the massive amount of “idle” money gradually gets put to work. One area that should also receive more funding is research and development (R&D). And that bodes well for the small cap, innovative companies that we unearth at The White Cap Report.

What’s more… these are the pioneering companies behind life-changing, breakthrough products, drugs, technology, etc. For investors who get in early, they’re the first in line to profit as the mainstream media and investment herd get wind of the opportunity.

http://www.investmentu.com

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules