CNBC's Squawk Box ran a segment this morning entitled, "Up Against a Wall of Cash," which discussed whether the huge balances in money market funds and bank savings are fuel for a stock market rally. The news brief, "Discusses whether cash is still king, with Peter Crane, of Crane Data's Money Fund Intelligence, and Jon Najarian, of OptionMonster.com." You can view the recorded video piece here.
Crane tells CNBC's Erin Burnett, "Cash in the mattress isn't all it's cracked up to be, especially if you have kids like me." On zero yields, he says, "You get a medal for that in 2008." Crane says the bubble in Treasuries applies to longer-term securities. "In the cash markets, you're talking about days or weeks, so a zero percent yield, even a slightly negative, were we to see it actually see it stay down there, wouldn't be intimidating to this kind of money. The money moving into money market funds is in the millions and billions. It's institutional money, so FDIC insurance just doesn't do it for those guys," he says.
Optionmonster's John Najarian makes the bullish stock argument and cites today's Bloomberg article (see our "Link of the Day"), saying, "The eight previous times we've seen this much cash and a market capitalization at these levels, we've seen a jump of 23% over the next six months.... So I think that a lot of the cash on the sidelines will be committed.... I would focus on some of the big companies that have been hording cash."
Crane counters, "There's a little truth to the 'Wall of Cash' theory, but it seems that every time the market's down the strategists trot out this [line] -- 'There's $2 trillion in money funds; there's $3 trillion; now there's $3.8, almost $4 trillion' -- but that cash tends to stick there. It's institutional money.... Cash competes with cash. Over time, it can fuel the market, and certainly the relative valuations matter, but most of that money is there for payroll, it's there for down payments, it's there for checking-account purposes that have nothing to do with the stock market."
Burnett asks, "What of deflation?" Crane responds, "Theoretically you could see negative yields.... I joke that there is nothing new about negative yields. We used to call them checking accounts. If you pay $8 a month, $10 a month, you're paying someone to hold your money. If you lose less than everyone else, you're winning."
CNBC's graphics for the piece included additional content. "You will see cash come out, but as a trickle, not a wave," Crane tells CNBC. They also cite Crane in saying, "Fears of numerous funds closing or going out of business are unfounded. Those cases we have seen are isolated incidents."
