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Money market assets are rising quickly…not necessarily a buy signal

Money market assets are rising quickly…not necessarily a buy signal.

Money market assets are rising quickly...not necessarily a buy signal
Money market assets are rising quickly…not necessarily a buy signal

The table below shows the other months when the 12-month rate of change in money market assets first exceeded 25%.

Money market assets are rising quickly...not necessarily a buy signal
Money market assets are rising quickly…not necessarily a buy signal

It wasn’t much of a signal in 1989, with a gyrating market over the next year. It was a great buy signal in ’95 and ’98, with exceptional gains over the next 1-2 years.
Then came the next two signals. While the bear market had already started in 2001, the ramping up of assets in money markets by June of that year signaled only about the half-way mark of risk aversion. In 2007, investors were shoveling money into money markets well ahead of trouble in the major equity indexes, and losses over the next couple of years were massive.

That doesn’t tell us a whole lot about our current juncture. Two signals were excellent buys, two were excellent sells, and one led to extreme choppiness.
More than anything, what we can take away is that this is by no means an automatic contrary signal. It’s abnormal given the market context, and it has led to wildly diverging results. Beware assuming it is a buy signal.

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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