Potential Energy

Written by Nathan White, CFA

 
This chart measures the the amount of selling that has taken place during this historic market downturn.

Focus on the bottom line of the graph, which measures money market assets as a percentage of total market value. At the end of October it was 32.8%, which is higher than 1982 and 2002!

The November figures are not available yet, and will definitely put the figure even higher.

The point of posting this chart is to offer some historical perspective of what happened after these peaks in cash levels. I would liken the large amount of money market assets as a tremendous store of potential energy just waiting to be released at some point into kinetic energy. Now, I don't know at what point all this "potential energy" will be released onto the market and there is nothing to say that it can't keep growing larger.

According to this chart, where would you want to be positioned right now? Remember to think long-term.