This Market Is Short on Cash

So where's the money going to come from to buy stocks and finally support a sustainable rally that will end the bear market? You've got to look really hard to find it -- and that's a problem for anyone hoping for a quick, strong move to bull from bear.

Editor's Note: TheStreet.com Revisits Sept. 11

The Making of a Hawk by James J. Cramer

What We Saw the Day Time Stood Still

Investors Will Lose at Patriot Games

Amid the Smoke, Repacking Wall Street's Data Pipe

Document Chaos Isn't Sorted Out

Battle Against Terrorism Boosts Defense Sector

Faint Glow Alights on a Once-Ashen Wall Street

Disaster Recovery Needs Didn't Stop Storage's Slide

Security Software Gets Mind Share, but Not Sales

Lodging Woes Linger in Troubled Times

Market's Terror Trend Plays Out Predictably

Bankrupt Ricochet Rises Like a Phoenix After Sept. 11

Airline Woes Preceded Sept. 11 and Will Remain

Wall Street Shocked Into Exodus

Take a look at the cash balances in mutual funds that invest in U.S. stocks. According to the Investment Company Institute, these funds had just 4.6% of their assets in cash at the end of July. In comparison, cash made up almost 13% of assets at the bottom of the market's decline in 1990.

There's not much fuel to sustain a rally. Especially when you remember that these funds like to keep a cash cushion on hand when they fear investors might redeem shares.

Insiders Aren't Helping Their Companies' Cause

What about corporate insiders? They're supposed to have the inside dope about when their company's fortunes will turn around. Are they buying now?

They're buying more; 44% of insider trades have been buys over the past three months. That's way up from the May low, when just 19% were buys. At the end of August, for example, insiders at J.P. Morgan Chase(JPM) bought more than 120,000 shares.

But most of this swing resulted from a huge drop in selling rather than a surge of buying. In dollar value, insider buys climbed 14% in July, while sales dropped 20%. Total dollar value of those buys came to just $143 million -- that's just 0.3% of the market value of J.P. Morgan Chase.

Buybacks Aren't What They Seem

The corporate buybacks that have been announced recently are less than meet the eye, too.

Certainly it's good news when PepsiCo(PEP) announces that it will buy back up to $5 billion in shares. The company had been out of the market for its own equities since October 2001. Equally positive is the news that Cisco Systems(CSCO) will buy up to $8 billion of its shares -- up from the $3 billion program announced earlier.

But those kinds of buys tend to support only selective stocks -- not every company is sitting on $21 billion in cash, as Cisco is. There's a corporate-profit crunch going on, haven't you heard?

Individual Investors Are Counting Pennies

Finally, it doesn't look like stocks can count on new saving by individual investors, either. Disposable income continues to creep ahead even in a struggling economy. Individuals are spending it -- which keeps the economy going -- but doesn't provide a pool of idle cash for future stock purchases.

In July, personal savings dropped another 18% from the already-low June figure.

So where will the cash come from if there aren't glorious heaps of it waiting on the sidelines? It will have to come out of existing investments in Treasury bonds, bond funds and money-market mutual funds.

For institutions, that means that the return from holding bonds will have to drop so far that even with their increased risk, equities look like a good buy.

Bond yields are certainly low enough -- at a yield of 4% yesterday, 10-year Treasurys were close to their 40-year-low yields. But the short-term risk in equities seems so high that institutions still weren't selling bonds to buy stocks.

Individual investors, who fled stocks for the safety of bonds, aren't going to be easily converted back to equities either. Safety rather than return is paramount right now.

With earnings-warning season off to a bad start, the anniversary of the terror attacks looming and the economic numbers still shaky, it's hard to see many investors dumping bonds for stocks this month.

At the moment, it's potential risk rather than possible reward that rules the markets.

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