Cash on Sidelines Myth
I've now come across a few variations of the following: https://www.pragcap.com/cash-sidelines-myth/
I take the (superfluous?) lesson on debit / credit accounting and agree that bid-ask is the ultimate driver of price. But I feel as though there are a couple of flaws:
- We need to define what is meant by "cash on the sidelines"; to me, an increase in cash on the sidelines means I take my pay cheque and I deposit it in my brokerage account rather than use it to buy a car. The amount of cash I've earmarked to buy stocks can indeed fluctuate. COVID was an extreme example - a record number of people bottled up at home opening up an IB account and funding that instead of going out. The UOP here is key.
- If I'm wealthier and/or have more cash, then perhaps I'm more willing to bid up?
- How does Culler Roche reconcile his thinking with asset or sector rotation? No cash is created or destroyed, sure, and yet asset prices obviously fluctuate (fundamentally due to bid-ask but there needs to be cash to support the bid).
Am I missing something here.
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