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Microsoft Inflow


Microsoft (MSFT:NASD) will pay a special dividend to shareholders of $33 billion. Much has been discussed as to the impact this will have (or in my opinion has already had) on the market. So here is my take on things.

$3 billion or so will go directly to index funds that own the stock. This will (if it hasn't already) go directly back into the SPX.

That leaves $30 billion. My guess is that half of that will go first to money market funds and then maybe make it back into stocks over time. But I think it is a pretty good guess that this amount will not have any near term impact on the market. But this is the wild-card.

That leaves $15 billion. First of all through dividend re-investment, a good portion of this may go right back into MSFT stock. But let's ignore that for the sake of the bulls on the market.

UBS just reported that mutual fund cash is now at a new all-time low of 3.9% of assets down from the previous all-time low of 4%. If mutual fund managers just want to get that number back up to 4% that would eat up $7 or 8 billion or half of the remaining amount. If they wanted to get it up to a "conservative" (being facetious here), it would eat up the entire amount.

So if mutual fund managers want to put the entire amount back to cash to bring that level up to a paltry 4.1% then the impact is negligible.

If mutual fund managers want to put half in cash (assuming they have a semblance of rationality) and half into the market, we should expect $3 billion from index funds and $7 billion or so from mutual funds equaling around $10 billion.

To put this in perspective, the average monthly inflow this year is $19 billion.

Now people are comparing this situation to AT&T Wireless (AWE:NYSE) thinking that all this buying will be done in a short period of time. But this situation is much different: AWE did not announce an ex-date until very late where we have known for months that MSFT was going ex-dividend 11/15.

So we must assume that the reason mutual fund managers brought down their cash levels recently is because they expected this inflow. So again assuming that they are rational beings, a stretch I admit, we will see at least half if not all go back into cash. And if you know anything about index funds, you know if they are certain of an inflow (which they are in this case, they would be putting that money to work over a linear period of time.

So I think a lot of the buying has been done by those that expect to receive inflows and more importantly, by those that expect others to.
position in AWE

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