Singularity and the Buzzard

By John P. Hussman, Ph.D. – Hussman Funds

I probably don’t need to repeat this, but I will because every hour watching CNBC is an hour being reminded that many Wall Street professionals (and virtually no financial TV anchors) have been taught how equilibrium works. The multi-trillion dollar pile of paper, bank, and money market deposits that people call “cash on the sidelines” is there because the Fed put it there. Someone has to hold every dollar of those Fed liabilities, at every moment in time, until the Fed retires them by shrinking its balance sheet.

It’s fascinating to hear people on CNBC repeating, “at some point this cash is going to come into the market.” No. No, it’s not. If interest rates come down, people may become more uncomfortable holding cash, and they even trade their cash for stocks if they’re willing to pay the most extreme valuations in history. But the cash doesn’t morph into stocks.