http://www.brasschecktv.com/page/671.html
July 12, 2009
Liquidity - it means having an ample supply of ready buyers so that when you bring whatever it is you have to market, there are people with money who are ready, willing and able to buy what you have to sell.
When you invest in stocks, you are entirely dependent on liquidity. If liquidity dries up there is literally no one to buy your shares. Without buyers, prices plummet and only stop when they hit values so low they are "ridiculous."
The #1 stock market question is this: Is there real liquidity in the market? Or to put it more simply, are there real buyers ready, able and wiling to buy stocks?
Rising prices and big volumes alone is not enough information to provide an answer this question.
Here's a reality check
Are investors behind the current market bounce?
I don't think they can be.
Here's why:
1. Private and institutional investors are sitting on 30% to 50% stock losses which they first have to SELL to raise cash to buy more stock.
2. If they're getting cash from stock sales, they have 30 to 50% LESS money to play with then they had a year ago. That is not good for liquidity.
3. If they're bringing in new money, where is it coming from?
Up until very late in 2008, there was very little cash sitting on the sidelines. How then can there be MORE cash available for stock purchases NOW after so much wealth was destroyed in the last several months?
4. If the new money in the market isn't coming from stock sales or from cash reserves, it had to come from somewhere.
It's possible then that stock prices are not being pushed up by legitimate buying but are instead being pushed up by a handful of high volume players who were given mountains of cash by the US government to "keep the banking system from melting down."
5. We know a few things about the trillions of dollars the US gave away in the past year:
a) It went almost exclusively to a handful of banks that maintain very aggressive trading programs
