As I mentioned in my 2015 Fearless Forecast, I view the bull market as being in the fourth quarter if this was a football game. While there is still a lot of game to be played, energy levels aren’t what they were in the first quarter and a few players have some injuries. And, the game could go overtime. It takes months and quarters and sometimes years for a bull market to peter out. The warning signs don’t all come at once, but usually over a long period of time. Today, the very early signs are low cash levels starting to appear. Investable cash is the Gatorade or fuel for bull markets to last. Of course, this can change since there is almost always several trillion dollars in money market funds.

My friend Jason Goepfert of recently posted some good charts on his site regarding this topic. Cash available in margin accounts is at historically low levels. The same can be said about retail money market fund levels. The very volatile Rydex money market fund has seen assets dwindle as has pension fund cash levels. Finally, cash allocations by Wall Street strategists and individual members of the American Assoc. of Individual Investors have gone to almost 0%.

In a vacuum, the average person would or should be very concerned about the perceived lack of cash available to fuel the market higher. But the skeptical analysis may offer a slightly different take. With interest rates at historically low levels I believe that the average person is not using the cash equivalent like they used to. They have migrated away from CDs and money market funds for investments with at least a little yield. Now, you can push back that behavior like that is a sign of additional risk taking which is late stage bull market, but I don’t completely agree that it leads to the immediate end. When the Fed wrongly raises rates later this year and into 2016 we will know with better certainty if investors move back to more traditional cash equivalents.

Paul Schatz

Paul Schatz is President and Chief Investment Officer of Heritage Capital, LLC, in Woodbridge, CT. and a Managing Partner at Numetrix Capital, an investment research firm focused on multi-manager, multi-strategy portfolio solutions.

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