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What Happens After Stock Mutual Funds Get Fully Invested
Stock mutual fund managers are almost "all in"
By Bob Stokes
Thu, 09 Aug 2012 15:45:00 ET
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This quote has been attributed to industrialist Andrew Carnegie:
 
"As I get older, I pay less attention to what men say. I just watch what they do."
 
There's a never-ending stream of chatter about the stock market. Opinions you hear from money managers and other financial professionals seem to change week to week.
 
But, the best way to know what the "big money" thinks is to watch what they do.
 
Read what the August 2012 Elliott Wave Financial Forecast says:
 
According to the Investment Company Institute, mutual fund cash levels are just 3.7% of total assets, close to the record low. The all-time extreme low of 3.3% occurred in March and July, 2011, when the NYSE and Value Line indexes topped... The chart [below] shows that mutual fund managers have been more fully invested over the course of the last two years than they have been at any prior period in history.
 

 

Why is it important to know the cash levels of mutual funds? 

The second edition of Robert Prechter's best-seller Conquer the Crash (p. 68) says:
 
In the aggregate, money managers are always most invested in stocks at tops and least invested at bottoms...they usually hold lots of cash at bottoms and little at tops. Needless to say, it would benefit their clients if they did the opposite. Needless to say, it can be no different.
 
The same psychology applies to the recommendations investment professionals make to their clients. This is from page 67 of Conquer the Crash:
 
Professional brokerage-house equity-allocation strategists tend to recommend a heavy weighting in stocks just before the market falls and a lighter weighting just before the market advances. This is normal behavior, which itself helps to set the market's highs and lows.
 
Besides mutual fund cash levels, EWI analysts look at other proven indicators, which today point to divergence and deceleration. 

Tags: cash, Elliott wave, hedge funds, investment strategy, mutual funds, pension funds, U.S. STOCK MARKET
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