With Massive Money Market Outflows (And Little Reinvestment) Are Consumers Funding Spending Habits Via MM Liquidation?

In its attempt to reignite the credit and risk bubble, the administration will stop at nothing from getting mom and pop to throw their zero interest earning Money Market funds away and to invest it all into shares of Apple and Amazon stock. Yet while holdings in money market funds are literally evaporating (down 8.5% as a % of total assets in the past 3 months alone), the proceeds are going not into stocks, but into IG and HY bonds (to a marginally greater extent), but mostly into Government Bonds. The greater population is betting an increasing amount of its life savings that David Rosenberg is right, and that Jim Grant, and all the other Bond bears, are wrong. In the week ended March 31, 2010, $32 billion in Money Market funds was pulled, according to Lipper/AMG, the third biggest outflow since the collapse of Lehman brothers. Year To Date, a massive $274 billion in money markets has been withdrawn, yet under $200 billion has been reinvested, of which $100 billion has gone into All Taxable Bonds (i.e., non IG, HY, Bank, EM, and Global debt) implying Treasuries are the primary investment class for the broader population by a massive margin. What about the $80 billion delta? Have investors pulled $80 billion from money markets without reinvesting, simply to purchase any and all deferred products and services? Has the government converted money markets into piggy banks for simple purchases, instead of a source for pushing stocks higher? Of course, with cash in MMs earning nothing, Americans would rather extract at least some intangible joy from owning a one-day fad like the latest iToeclipper from Steve Jobs, then see their cash do nothing (and hope that the deflationists will be proven correct at some point in the (not so) distant future). Too bad the levered and unlevered cash flow from that Kindle or the iPad is zero at best and worst.

Summarizing the weekly and YTD flows by asset class. In summary $275 billion has been pulled and $195 billion has been reinvsted.

What does that mean for the delta? Are consumers merely using money markets as piggy banks for assorted purchases, which continue to keep retail sales "above expectations?"

Caveat: Lipper and ICI differ materially in their observations. Lipper/AMG (which is the source for the above data) estimates inflows into equities of $17 billion. ICI has this number as -$3.5 billion: a $20 billion delta. How one can proceed to make any thematic conclusion based on ever shakier data sets is just as big a quandary as what the underlying data is supposed to reflect.

Comments

[omi]

Oh shit! someone IS buying stocks.

[jeff montanye]

like the reduction in savings going to "splurging" on clothes and "stocking up" on groceries, perhaps the residual money market funds are keeping people clothed and fed.

[SWRichmond]

Yeah, that's me and my retirement accounts.  I'm increasing my allocation to miners and to Sprott's PHYS.

[Missing_Link]

What mining stocks do you recommend, Richmond?

[geopol]

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[AUD]

Demand for treasuries is strong. Here in Australia treasury issuance is off the charts yet longer term yields have been (more or less) stable for quite some time.

One might almost think that the issuance is preventing yields from falling.

[A Man without Q...]

I am sure plenty of the MM withdrawals are being used to pay down debts.  

[wang]

the same consumer wan't concerned about paying back the principal on their interest only mortgage so why not use MM proceeds and effectively borrow from their future to buy the the latest gadget (or food)

[MarketTruth]

With the relatively new law that passed, which allows Money Market funds to FREEZE your account, everyone i know removed their Money Market funds.

Buy physical gold/silver. Paper for paper makes little sense at this point as real assets is key during this highly volatile time.

[girl money]

Funny how some laws succeed in their intent, while others backfire with a glorious KA-BOOM!

[deadparrot]

Experience has taught me that if so much dumb money is getting out of cash, and companies are hoarding it, cash is a good place to be.

[Fish Gone Bad]

I would have to agree.  I put in a safe and now have been putting plain cash aside.  It makes absolutely no interest, but in case there is ever a bank run, or some other "OH SHIT!" event, I will have cash. 

[Dirtt]

Exactly what we are doing.  Not only forcing parent to retire to stop paying taxes and start taking SS but also to get assets out of retirement and into cash for now.  It's a process that does not happen overnight.  But it must conclude before the shit hits the fan.

And you will need dollars to jump on the deal.

[the grateful un...]

A few years ago, the BOJ was draining MM funds from their economy, and I said how come the BOJ has MM funds? (Nobody knows) Well it had something to do with the way they prop up the banks, and it may be the FED is following the same operational methods, Japan, deflation, why not?

Someone said pay down debt, and that is a reason, anything to get those monthlies lower. If you can spend $5000 on a solar water heater and save $50 a month, why not? You aren't going to get that kind of return at the bank. I've said this for a long time, people should be buying solar panels, not wide screen TV's.

and Uncle does his part to make sure you turn in that old car, or that old refrigerator. (In Germany all cars over seven years old go to the scrap metal place) Like the healthcare debate, they're going to make you buy it, to paraphrase George Bush, don't let those terrorists win, shop till you drop..

And here we are today, same guy different wife.

its also possible that some corporate organizations might float energy bonds, some guy ran for mayor of San Diego on the premise he would float bonds to make the city energy self sufficient - he got 1% of the vote, the guy who won wants to float a bond to use taxpayer dollars to give some already rich guy a new football stadium-

we have a long way to go

finding ways to spend money to save money, consumers are moving in that direction. got vegetables, livestock, recreational drugs? i meant like some grape vines, for wine

[Dirtt]

Because it takes more than $5000 to save $50. More like $25,000...

[kevinearick]

all the major sheeple media outlets, AARP magazine, etc, have been pushing this.  The click / herd is being moved.

[AR]

We believe two reasons might account for these recent outflows out of Money Market funds:

(1)  TAX Due toward March 15th (corporate), and April 15th (personal) deadlines, and

(2)  Investments due to dealines for Pension & IRA contributions.

[Itsalie]

"In the week ended March 31, 2010, $32 billion in Money Market funds was pulled, according to Lipper/AMG"

Here is where the $32b money went: Bloomberg reported 700,000 iPad sold on first day. That is $350m per day. Over a quarter of 90 days, that works out to $31.5b plus or minus small change. Joke aside, nothing will change in la-la amerikana, buy them because Obama says its patriotic, buy them because it is our birth right, buy them because the stupid chinese are willing to work for pittance, their government are willing to subsidize their commodities imports, and peg their stupid yuan to a sinking dollar. 

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8tqczmPI8Kw&pos=2

[Sam Clemons]

I've often, possibly erroneously, wondered if you keep creating tons of money, then because people can't possibly consume with it all that it just goes into bond markets (most people don't like commodities and stocks are too "scary") keeping yields low.  Almost the polar opposite of what one would think would happen with mass currency issuance.

[HEHEHE]

This is precisely what's happening.  I know plenty of people who are unemployed and have cashed out 401-k's to try and stay in their homes etc.  Why would MM funds be any different?  People are using was to be their retirement to live day to day.  But not to worry, Geithner said we've begun a sustained recovery.

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