Money Market Funds Plunge By $38 Billion In Prior Week, 1.5% Of Total, YTD Flow Differential Now At Record $134 Billion

Tyler Durden's picture

One does not even need to look at daily record gold prices to grasp the accelerating dollar credibility loss. A better proxy might well be the plunging assets at money market funds: in the past week these saw a massive outflow of $37.9 billion, which represents a drop of 1.5% in total money market assets. Even scarier is that this is almost half a trillion, or $456 billion in YTD outflows. From the peak, current MM holdings have declined by 28%, or over a $1 trillion. Speaking of losing credibility, the "money on the sidelines" argument is promptly losing it as well. Yet ironically even as half a trillion in cash has been pushed "elsewhere", the dollar, on both a relative basis (FX), and due to ongoing deflation, has continued to gain strength. US consumers have once again listened to the propaganda media and lost: whether it is due to the slow and unchanged grind in all asset classes over the past 6 months, or the sudden, massive losses from the flash crash. Either way, with gold at an all time high, we now know where some or all of the $134 billion differential between MM outflows and all other fund inflows, has gone.

Total MM holdings:

Total fund flows YTD, per Lipper/AMG:

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qussl3's picture

The chart also implies that in the "boom" years 05-07 MM funds were increasing too, what does that say about the money on the sidelines spiel?

Am I missing anything?

Lighty's picture

I think if they go up FED would say "a lot of money is on the sidelines", if they go down "a lot of money is being invested". A textbook example of manipulative framing bias.

Anyway, as you pointed out, looking at the correlation with S&P during bull market, this doesn't spell good news for equities.

BlackBeard's picture

This may have to do with regulation passed last year that basically states that MMFs may be held hostage per government discretion in the event of a crisis.  Institutions are probably rotating out of MMFs into USTs etc.

Joe Shmoe's picture

This is a great post.  Tie this with the Lipper Mutual fund outflows yesterday, and you verify that a ton of money is leaving the market.  I've heard people refer to this "dry powder" as a bullish indicator,  but it isn't and never has been. 

Some's probably going into gold, hard assets, etc.  But, from where I sit, I see a ton of it just going to pay down credit cards and keep people's lives afloat because they don't have any income anymore.

jbc77's picture

Thats my guess Joe....people are simply cashing out. Cashin' out MF accounts and bangging the money market accouts just to pay down debt, pay rent, food.....

When the unemployment checkes stop coming people are going to cash out whatever neccessary to keep afloat.


mikla's picture


The consumer is de-leveraging (paying down debt).  This is hugely deflationary.

Similarly, money really is flowing into precious metals.  This also is deflationary, because those metals are not leveraged (they are in a coffee can buried in the back yard).

The velocity of money is dropping.  Unemployment is growing, not shrinking, and people are spending their savings to eat.

Turd Ferguson's picture


Don't let the Evil Empire stop out your shorts. Something wicked this way comes.

Cursive's picture

+1 to your +1.


I will add that the dollar is going up because demand for dollars is going up.

DosZap's picture


"I will add that the dollar is going up because demand for dollars is going up."

Imagine, moving your life savings into dollars......why?.

The BEST of the worst?(Western)............millions of Americans are going to get killed on the dollar, holding them is insanity............

Ragnarok's picture

You need dollars to pay off debt denominated in dollars.

Cursive's picture


Ragnarok beat me to it.  Look, I realize the luster of gold or anything to cut through the lies of men (fiat currency), but unless and until the U.S. Army and Navy are disbanded and and the IRS stops requiring tax remittance via FRN's, then we're going to have FRN's.  It's a corrupt system, I don't like it, but it's the system we got.

idea_hamster's picture

Money flowing into physical precious metals is generally inflationary.

Just as you note, the unleveraged gold transaction is settled in cash which releases M1 to the account of the seller. That M1 will expand the money stock.

More intuitively, by buying gold, you express a sentiment that cash is less valuable. Inflation is the devaluation of cash whether thought supply/demand issues or lack of confidence issues.

To the extent that you "give up" on currency, it is inflationary, i.e., the money goes to its commodity value, which, with fiat is about 0, although you can keep a stack in the outhouse....

mikla's picture

Money flowing into physical precious metals is generally inflationary. <snip>, buying gold, you express a sentiment that cash is less valuable. Inflation is the devaluation of cash whether thought supply/demand issues or lack of confidence issues.

I agree with your assertion.

My only response (specifically in regards to greater demand for precious metals) is that it also suggests, "I will no longer participate".  True, that implies fiat is devalued (typically assumed to be inflationary, and I agree).  However, it also implies:

  1. The consumer deleverages.  This is deflationary because as debt is retired, the money supply drops.
  2. The consumer won't transact.  The consumer won't borrow nor spend.  That's deflationary because a money-supply-growth of zero is deflationary (based on how the system works), and because it drops the velocity of money.
  3. The consumer's wealth can no longer be leveraged by third parties.  It's not parked in a bank account for a third-party to leverage, and it's not parked in a house where the government can pretend it owns an annuitized property tax stream.  Rather, it's in a coffee can in the back yard, where nobody is leveraging it.  That's HUGELY deflationary.

So, yes, I agree that fiat is dropping in value (inflationary), but the de-leveraging and velocity changes are deflationary.  We're all guessing at the net result.  I also agree with another comment in this thread that there is a worldwide growing demand for dollars, which further complicates things (short-term deflationary).

Of course, the "vote" for PMs away from fiat (specifically away from fiat confidence) is an interesting prelude to hyperinflation (e.g., "I don't care how many fiats you have, I'm not trading my chicken for them.")

IMHO we're not there yet -- people don't yet have "no faith" in fiat.  Rather, people simply refuse (are not willing and able) to participate.  (I'm not willing.  The unemployed are not able.)

buzzsaw99's picture

There is also a small segment which is cashing out for fear the fedgub will steal/tax their 401k. Whether out of necessity or whatever imo the people are actually taking advantage of the PPT's generosity. It's about time the average Joe caught a break.

Dr. No's picture

I am in that segment. +1

worldlymrb's picture

I am in that segment +2. 

Tinsu's picture

I've been a financial advisor for 20 years.  During the first 18 years, it was very, very rare that clients withdrew funds, other than monthly income.  Now, the flow of funds out is significant.  Our cashier churns out checks all day long.  99% of those checks are to pay current bills.  Clients tell me that they need the money to pay for things like home repairs, car repairs, medical bills, taxes, etc... or to bail out their kids who are one step away from bankruptcy.  When I send out money, I always ask what they are going to use the money for.  It's never been to pay off credit cards, it's been to pay a current bill.  My guess is those credit cards are maxed out, and this brokerage account is their last bucket of money.

Cursive's picture

@ Tinsu

Interesting.  Thanks for the anecdote.

bugs_'s picture

Move it into FDIC insured demand deposits.

You might still be able to make a withdrawal on that day that all trading ceases.

nevadan's picture

Agree bugs.  Anyone that is aware of the rule change regarding withdrawals being subject to "emergency" restrictions of MM's on an ad hoc basis is justifiably worried.  Better safe than sorry.

DosZap's picture


I would not suggest that, if it's any amount over 10-15k, you will have to wait.

Banks are sending out notices of waiting periods for Large withdrawals.............and it will be their definition of large.

Also, another reasom M Mkt accts are going down, if memory serves, the Fed stopped insuring them.'s picture

I agree Joe. Money going to gold, paying down debt and probably some  chasing yield given demographic change for stocks.



Jim in MN's picture

Without a policy revolution that enables some kind of progressive (income-adjusted) bond writedowns/haircuts, we simply are a penniless Japan.

Zero real return across all major asset classes is now an optimistic assumption.  Check with your pension fund manager about their assumptions on this.

It makes a lot more sense to pay down debt, which is like a bond investment minus principal risk, than to let your savings rot, at best, while vampire squids and wannabe squidlets and insane central bankers take chunks out at random (yet oh so predictable) intervals.

Heck, it makes more sense to borrow at low rates and get more hard assets than to participate in the charade that passes for the average households 'financial sector' options.

Can you just buy a paper corporate bond, take possession, and hold it to maturity, making say 5% annually?  NO.  You have to suffer in a so-called bond fund.  It's all so vomitous.

Panafrican Funktron Robot's picture

This was a particularly good common sense explanation regarding why you go into physical assets.  I would suggest that this has actually always been the key to building real, sustainable wealth.

hellboy's picture

lets see how ERCI is doing...

cognitis's picture

Funds and retail speculators are clearly moving money from MM to stocks like AAPL.

etrader's picture

Which as usual will end in tears......

101 years and counting's picture

Gold?  Paying down debt?  LMAO.

Everyone is buying iPads!

Jim in MN's picture

Um, dude, data.  US retail sales still haven't reached pre-crash levels.  They peaked at 342295 in November of 2007, got choppy, crashed as low as 296000-297000 (levels not seen since 2004, hence TEOTWAWKI freakout in DC/NY), and most recently posted a decline in May from 327429 to 323007.

Ipiddles are selling but overall retail sales are still down.  The money's not there....


Cognitive Dissonance's picture


I agree that the data doesn't back the posters assertion that people are spending money (we assume he/she means like they were) though no doubt their is some silly spending going on.

Data, or the lack there of, never stopped anyone from believing what they wish to believe.

ColonelCooper's picture

"Data, or the lack there of, never stopped anyone from believing what they wish to believe."

That is an excellent observation CD.  Spending is down because those who can't spend cant; those who won't spend, won't.

The only people propping the whole thing up are those who unwittingly allow themselves to believe in "the recovery."  They believe because it is easier to believe, and the alternative is unthinkable to most. 

Panafrican Funktron Robot's picture

I thought this was particularly telling, as people commonly (and I would suggest accurately) think of their local area department stores as being a pretty good bellweather for how the real economy is doing.  As shown in this table, May 2010 was the worst May sales month on record since 1992.

Tinsu's picture

Last weekend, we stopped by the AAPL store on Michigan Ave. in Chicago.  The place was packed with lemmings playing with the iPads.  The happy faced AAPL clerks where moving from lemming to lemming answering their questions with a big smile.  It was a "Thomas Kincaid" moment, except for the fact no one was buying anything.

Bankster T Cubed's picture

if the stinking housing bubble had not allowed the home-as-atm phenomenon to flourish, this would have been the norm since 2003

Treeplanter's picture

If your broker is backed by JP Morgan or Bank of America, what happens to your portfolio if these banks go bankrupt?  Do they take your account with them?    

Joe Shmoe's picture

Not in theory.  In theory SIPC is supposed to cover this risk.  But, what can happen is a firm sells its assets to some other solvent bank, so you might just end up with a different colored letterhead (as in Smith Barney went from Citi to MorganStanley).

Treeplanter's picture

Thanks, Joe. I won't be nervous if JPM goes down with a silver default and I'll feel fine as the FAZ rises against the banksters.

SamThomas's picture

Customer accounts are segregated from the books of the broker-dealer.  In theory at least, if the brokerage firm goes broke, the regulators close the doors, do an accounting of assets, etc., and very quickly transfer customer accounts to a new broker-dealer.  The last major firm with significant retail exposure to fail was Drexel Burnham Lambert and retail clients sustained zero losses.   There is normally no co-mingling of client assets with the books of the broker-dealer, though Eric deCarbonnel at Market Skeptics had a lengthy post a few weeks ago about potential customer exposure to firm-specific risk via "hypothecation," which is a fancy term for the broker-dealer engaging in the lending of customer securities for short-sales and margin loans which the client may not be aware of and which the customer may be exposed to even if they do not themselves engage in these practices.  In hypothecated accounts, the client may have exposure to the risk of failure of their counterparty, i.e. their own brokerage firm or perhaps the firm to which the security in question was shorted.

Most clients of securities firms are unaware of this potential exposure, but if you have a checking account on a central asset secuities account (very popular--CMA, FMA, RMA accounts,  all major wirehouses have them, as well as the discount brokers) you most definitely signed a Client Agreement with a "margin" feature buried somewhere in the fine print.  "Margin" equals "hypothecation" which equals potential firm-specific risk. 

SIPC insurance is usually envisioned to cover losses from cash positions (literally uninvested cash, not money-fund balances) which may be in a customer's account and which are considered assets of any brokerage firm.   This is a rarity since most firms automatically sweep balances into money-market or FDIC-insured bank deposit accounts.   Whether SIPC insurance would apply to the risk I mention above, or whether there would be sufficient SIPC funds to deal with the simultaneous failures of multiple firms and all the margin exposure associated with such an event, I have no idea. 

BobPaulson's picture

Can't see gold taking a big bite out of munny-markets given how fringe gold is to the mainstream. I'm still the only person I know who is talking gold in my circle of friends. We're nowhere the point where the masses start buying it in North America.

Ragnarok's picture

Same. Texas.


A lot of talk about guns though. Ha.

Treeplanter's picture

Same sad story here.  I have yet to persuade any family or friends to buy a single oz of gold or silver.  Because this looks like a limited participation breakout, I am assuming this gold rally will last a couple more days and then take the elevator south.  This time I plan to take some miners' profits ahead of the Central Banks' attack, ready to buy back in at the lobby.

Catullus's picture

My gentle snowflakes, the money is going into deposits at the FRB. That's not deflationary. That's exponentially Inflationary.

Panafrican Funktron Robot's picture

As far as the answer for "what happened to the money", I would suggest that the opacity of asset valuation is the main barrier to figuring this out with any reasonable degree of accuracy.  It's a bit like trying to figure out how deep a well is by looking down into it, at night, without a flashlight. 

Jim in MN's picture

Hey, that's just what trying to figure out the limits of central bank insanity is like!  What a coincidence.

Panafrican Funktron Robot's picture

Exactly.  It's pretty easy to guesstimate that the assets on the Fed's books are really only worth (optimistically) about 60-65% of what they say they are (which would have immediate crash implications), but not being able to back up that assertion due to lack of access to that information means they get to keep bullshitting that asset figure, which causes fairly significant market inefficiencies due to subsequent capital misallocation.

CashCowEquity's picture

deflation for the win !

huckman's picture

Could be gold, could be anything else too.  Time deposit vs a demand deposit i.e. checking accounts, too makes sense.  If it went into treasuries then score one for Ben.