This page has been archived and commenting is disabled.

Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote

Tyler Durden's picture




 

Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant.

As a reminder, here is the gist of the proposal as pertains to redemption suspension:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i)
The fund’s current price per share, calculated pursuant to rule
2a–7(c), is less than the fund’s stable net asset value per share; (ii)
its board of directors, including a majority of directors who are not
interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee.
These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus,
the proposed conditions, which are similar to those of the temporary
rule, are designed to limit the availability of the rule to
circumstances that present a significant risk of a run on the fund.
Moreover,
the exemption would require action of the fund board (including the
independent directors), which would be acting in its capacity as a
fiduciary. The proposed rule contains an additional provision that
would permit us to take steps to protect investors.
Specifically, the proposed rule would permit us to rescind or modify
the relief provided by the rule (and thus require the fund to resume
honoring redemptions) if, for example, a
liquidating fund has not devised, or is not properly executing, a plan
of liquidation that protects fund shareholders. Under this provision,
the Commission may modify the relief ‘‘after appropriate notice and
opportunity for hearing,’’ in accordance with section 40 of the Act.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 01/27/2010 - 13:11 | 207750 Anonymous
Anonymous's picture

Link?

Thu, 04/07/2011 - 05:50 | 1144505 george22
george22's picture

Great post! I?m just starting out in community management/marketing media and trying to learn how to do it well - resources like this article are incredibly helpful. GoSeeq

Thu, 04/07/2011 - 05:53 | 1144507 george22
george22's picture

Great post! I?m just starting out in community management/marketing media and trying to learn how to do it well - resources like this article are incredibly helpful. GoSeeq

Wed, 01/27/2010 - 13:11 | 207751 Anonymous
Anonymous's picture

what do the big boys like Vanguard, Fidelity, etc have to say about this?

Wed, 01/27/2010 - 14:50 | 208002 Anonymous
Anonymous's picture

We have nothing to say. We can't do anything anyway. We must follow the SEC mandates. Nothing to see here, move along. Z

Wed, 01/27/2010 - 13:12 | 207753 Anonymous
Anonymous's picture

This is why t-bills have negative yields. According to the new rules money market funds can only invest five percent of their assets in second tier securities. That means portfolios have to be rebalanced with 95% AAA assets which means the only thing they can really buy is Treasurys.

Wed, 01/27/2010 - 15:13 | 208052 Anonymous
Anonymous's picture

5% is not new and AAA has no bearing on money market funds. It is the short-term rating, A1 from S&P, P1 from Moodys that is considered in the funds make-up. A money market fund has been able to hold up to 5% of second-tier paper (A2/P2) and still be considered a top-tier fund.

Wed, 01/27/2010 - 15:21 | 208078 Anonymous
Anonymous's picture

Is this coming soon?

http://www.nytimes.com/2002/08/01/business/uruguay-closes-all-banks-afte...

The fools will instigate a hoarding spree.

Wed, 01/27/2010 - 17:21 | 208267 ATG
ATG's picture

Since there are less than a trillion dollars in

Federal Reserve Note physicals available,

versus trillions in virtual Gold and Silver ETFs

and exchange derivatives, mattress money may

rule as prices go back to the 1930s. Wait until

they turn off internet banking and brokers...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 13:14 | 207758 SV
SV's picture

Just took down a 401K not too long ago.  Didn't take a genius to see the writing on this wall was coming.  Exits are getting blocked people... 

Wed, 01/27/2010 - 13:29 | 207797 Anonymous
Anonymous's picture

the fascist state is alive and well....germany
1933 has embodied america in the 4th reich....

Wed, 01/27/2010 - 13:55 | 207859 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Pattern? what pattern?!? Nope, don't see any patterns developing here. Hmm.

Wed, 01/27/2010 - 13:56 | 207861 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Pattern? what pattern?!? Nope, don't see any patterns developing here. Hmm.

Wed, 01/27/2010 - 17:23 | 208273 ATG
ATG's picture

Mandatory Pension conversions to annuities

buying only Munis and Treasuries?

Ammo food sales off the chart first...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 13:16 | 207765 Anonymous
Anonymous's picture

Can anyone recommend an online trading account that doesn't park cash in a money market?

Wed, 01/27/2010 - 13:51 | 207855 naiverealist
naiverealist's picture

I have accounts at TD Waterhouse in which I have specifically directed them to hold my cash as cash and not "sweep" it daily into their money market account.  I presume that most dealers have the same option, but don't know, as I have been happy with my broker.

 

This does not constitute a reccomendation, only a depiction of my actions.

Wed, 01/27/2010 - 15:35 | 208108 gookempucky
gookempucky's picture

Ditto'd that last year -also with TD--mucho grateful ZH.

Wed, 01/27/2010 - 15:44 | 208124 peterpeter
peterpeter's picture

And what protection do you have against TD going up in smoke?  If you're worrying about gates closing on money market funds (something that has happened so far only once that I know of), it would seem to me that you'd also try to evaluate the risk of a bank failure...

SIPC coverage is laughable, since they would become insolvent in the event of a failure as large as TD - and it only covers the first $100K in cash.... so you'd be better off IMO linking your TD account with an FDIC insured bank and parking your excess funds in a checking account.

Another option to consider would be to buy ETFs holding short term govt paper, like BIL.

 

Wed, 01/27/2010 - 18:31 | 208378 Anonymous
Anonymous's picture

ditto'd ditto'd with TD, i can't find any info if
TD Bank USA, N.A. received any TARP!

Wed, 01/27/2010 - 16:52 | 208226 Anonymous
Anonymous's picture

I recently noticed that Schwab no longer sweeps my cash to an MM fund. It just goes into a category labelled "margin cash".

Wed, 01/27/2010 - 17:24 | 208276 ATG
ATG's picture

Scottrade?

Wed, 01/27/2010 - 22:02 | 208556 Anonymous
Anonymous's picture

Scottrade offers a bank deposit program as a sweep vehicle. My understanding is that many discounts utilize a similiar product. FDIC coverage up to 2.5 million because they spread your deposits over several participating banks.

Wed, 01/27/2010 - 13:17 | 207767 Dr Horace Manure
Dr Horace Manure's picture

Now where do we run to?  No more MMMFs for me.  Let the run on MMMFs begin NOW.

Wed, 01/27/2010 - 13:17 | 207769 tenaciousj
tenaciousj's picture

Usually a sure fire way to create a run on certain funds, is to spook people into believing they no longer have control over said funds.

Wed, 01/27/2010 - 13:22 | 207778 Anonymous
Anonymous's picture

Exactly. Whatever paltry amount of cash I have in my Schwab MMF is now coming out immediately. How dumb are these people? I guess they're just assuming most aren't paying attention.

Wed, 01/27/2010 - 13:22 | 207776 SmalleyD
SmalleyD's picture

I'm screwed. My 401k doesn't permit rollovers as long as you're still employed with the company. And what is one's choices after that, but to move it to a qualified IRA anyway.

Wed, 01/27/2010 - 13:28 | 207794 Anonymous
Anonymous's picture

I believe I read on Mish's Economic blog a commentary
where the person quit his job so he could
withdraw his 401k.

Wed, 01/27/2010 - 15:52 | 208135 Anonymous
Anonymous's picture

Maybe companies should start offering three day dismissals and rehirings as part of their 401K package.

Wed, 01/27/2010 - 14:32 | 207956 Anonymous
Anonymous's picture

you know you can hold precious metals in an IRA, right?

Wed, 01/27/2010 - 17:26 | 208280 ATG
ATG's picture

A good way to lose money with deflation...

http://www.jubileeprosperity.com/

Thu, 01/28/2010 - 18:12 | 210028 Anonymous
Anonymous's picture

Deflation? Ha! Inflation is coming dude - it's the only way they can take down these debts. Hell, it's already here in the food prices.

Wed, 01/27/2010 - 15:01 | 208027 chet
chet's picture

A good IRA should offer you much more choice than your 401k.  Many 401k's are a total rip with horrible fees and very few choices, and if it weren't for the match I'm getting, I wouldn't participate.

I'm in your boat.  401k is tied down as long as I'm employed.

Wed, 01/27/2010 - 17:17 | 208262 RatherBFlying
RatherBFlying's picture

Check out the loan provisions. Max out the loan amount now.

 

What to do with it when you get it in your hand? Well, after this ruling, I don't know. Looking for suggestions.

Wed, 01/27/2010 - 13:22 | 207779 Gimp
Gimp's picture

After Captialism comes Fascisim. It will slowly creep into our lives until one day you will wake up and be under complete control. Ach Tung Baby!

Wed, 01/27/2010 - 13:24 | 207782 trav7777
trav7777's picture

JFC, they are really starting to lock the exits.

Devaluation coming?

Next rule:  SEC can suspend withdrawl from your checking or savings account.

Wed, 01/27/2010 - 13:33 | 207806 deadhead
deadhead's picture

actually, as I recall, banks have an enormous amount of leeway to saying no to withdrawals.  i don't remember all the details as it has been a long time since my banking days but banks do have that power to say no.

Wed, 01/27/2010 - 17:29 | 208282 ATG
ATG's picture

.

Wed, 01/27/2010 - 17:28 | 208283 ATG
ATG's picture

Courts ruled deposits do not belong to

depositors, but the bank or broker...

Wed, 01/27/2010 - 18:44 | 208396 Anonymous
Anonymous's picture

most internet banking, everbank, hsbc, countrywide a year ago were offering some interest rate incentives and would put in a couple of hundred thousand, but they had strict increment limits taking out daily, weekly, monthly. banks just suck. you can put it in a second but you can't take it out. actually dealing in cash was the biggest awful awakening, dirty worthless paper your trying to hide or keep safe. when you stack it is huge cause america only has $100.00 bills. try taking it back in the system, that is a wake up call. sit for hours while they have to count it by hand three times with a witness.

Thu, 01/28/2010 - 18:49 | 210109 Anonymous
Anonymous's picture

I wish I had your problems.

Wed, 01/27/2010 - 13:43 | 207833 Rusty_Shackleford
Rusty_Shackleford's picture

This is an important point.  People think of checking and savings accounts as "their money".

 

It is not "your money".  "Your money" was loaned to the bank when you "deposited" it, and the dollar amounts on your accounts is what the bank "owes" you.

 

If you've got money in the bank, it is not yours.  It is just what the bank has agreed to pay you back - if it can.

It's as simple as this "Can't pay - Won't pay".

 

Wed, 01/27/2010 - 14:10 | 207901 WaterWings
WaterWings's picture

In the same vein if you stop paying property taxes the government will take back your land. It never really was yours in the first place.

Wed, 01/27/2010 - 13:25 | 207783 bugs_
bugs_'s picture

Another foreshock.  Get ready.

Wed, 01/27/2010 - 14:02 | 207885 Brindle702
Brindle702's picture

+100

Wed, 01/27/2010 - 13:25 | 207785 Anonymous
Anonymous's picture

This is classic frogs in the pot... before most people realize what's happening it'll be too late.

Wed, 01/27/2010 - 13:26 | 207787 Anonymous
Anonymous's picture

I withdrew on of my IRA's Jan 4,2010 thanks to the heads up by ZH!

Buckle up for some ugly times on the way!

Wed, 01/27/2010 - 13:28 | 207795 Anonymous
Anonymous's picture

Everybody who has parked their 401K's in MM$ now
are watching their funds transform into a pile of
leaves....only waiting for the perfect storm to ignite
them into ashes.

Wed, 01/27/2010 - 13:31 | 207799 Anonymous
Anonymous's picture

So let me get this straight - I own a stock, I decide to sell it because it is tanking, the remaining funds automatically go into my money market account - and then I can't get the money to put into a safe place like my safe when I think we are getting close to tyranny?

Wed, 01/27/2010 - 13:44 | 207836 Rusty_Shackleford
Rusty_Shackleford's picture

Bingo!

Wed, 01/27/2010 - 14:33 | 207958 cougar_w
cougar_w's picture

Yes. And so equities start looking like a safer place to store money than MMF.

So back you go.

See?

Wed, 01/27/2010 - 17:32 | 208288 ATG
ATG's picture

Not at all without earnings in deflation

and insolvency.

Physical cash the only safe store of value...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 20:29 | 208482 Anonymous
Anonymous's picture

Paper Cash?

That's worth less than nothing.

Bottled water, toilet paper & ammo, now that's worth something!

Wed, 01/27/2010 - 22:02 | 208555 msjimmied
msjimmied's picture

Bottled water...do some homework on getting a system that will chlorinate, filter, declorinate and even do a reverse osmosis number on whatever what source you can get. 5-6k and you're set. Don't store it, process it.

Thu, 01/28/2010 - 13:33 | 209382 WaterWings
WaterWings's picture

If you're spending that much you might as well get one of these as a backup. In fact, get it first:

http://www.amazon.com/Katadyn-8013618-Pocket-Water-Microfilter/dp/B0007U...

Compare total number of gallons to other models. This is bang for the buck. Plus, if you have to get the Duck out of Fodge you can take this with you. If your mindset is prepared for a worst-case scenario you would be unwise to overlook your daily "safe" water requirement.

Wed, 01/27/2010 - 13:31 | 207800 docj
docj's picture

The next step is to force the conversion of these funds to government securities - to promote "stability", of course.

Wed, 01/27/2010 - 14:35 | 207967 Anonymous
Anonymous's picture

I am considering converting my IRA to precious metals. In your view, does that offer any greater protection from gov't confiscation, er, urging into Treasuries?

Wed, 01/27/2010 - 15:57 | 208141 Anonymous
Anonymous's picture

Well at least they don't fluctuate in value as much as cash. (joke)

Wed, 01/27/2010 - 14:38 | 207972 chunkylover42
chunkylover42's picture

ding ding ding!!  I was scanning comments to see if anybody made that argument so I could make it myself.  And I agree with you 100%, that is step two of the plot.  One possible intermediate step might be to allow the NAV of money markets to float, such that they won't always be worth $1 a share.  This has been talked about, but I haven't heard anything recently.  It certainly fits into the program.

Wed, 01/27/2010 - 17:35 | 208292 ATG
ATG's picture

Does anyone seriously think they will outrade

the Big4 short copper, gold, platinum and silver

on unlimited credit lines and making the rules?

Maybe if the Fed or Treasury went broke first.

Next stop $350 gold and $4 silver...

http://www.jubileeprosperity.com/

Fri, 01/29/2010 - 10:38 | 210801 Anonymous
Anonymous's picture

yes when the wehole world gets into buy gold and silver for protection the big banks wont look so big anymore there are already central banks that are buying it up and more will be soon to follow gold and silvers been money for over 500 years and dont count on deflation our government wont allow that look more for hyperinflation

Wed, 01/27/2010 - 13:37 | 207817 peterpeter
peterpeter's picture

> Too bad investors' hardships considerations ended up being completely irrelevant.

I know that Tyler's MO is effectively to just take the opposing view of any position that the SEC supports, however the commissions position on this issue I believe is appropriate given the structure of money market funds.

While one can certainly (and I do) take issue with the entire notion of money market funds with stable $1 reported NAV (regardless of the true liquidation value of the fund's holdings), once you have create a product such as we now have, I don't see how you could not support a provision for a fund to close its window, and I do believe that it is in the interests of the funds investors - on average.

If (as will certainly happen at some point again in the future), the assets of the money market funds fall below reported $1 NAV per share, and funds are allowed to be withdrawn in a first come first served manner, you essentially produce an envrionment where there is guaranteed to be a run on money market funds.  Given the size of the holdings of money market funds and the inter-connected nature of them (overlapping positions between funds is very high), the liquidation of one fund's assets in a run (which would be allowed without the SEC's recent vote) would drop the value of the assets of other funds, precipitating runs there as well.

In my opinion, this is a far better alternative than the Treasury's pledge of US taxpayer dollars it does not have, to insure the entire money market fund industry - which is exactly what the Treasury was forced to do in the wake of the Reserve Money Market fund debacle.

Hopefully, the SEC will address the $1 NAV issue next week and this issue will one day become moot.

 

Wed, 01/27/2010 - 14:44 | 207986 Catullus
Catullus's picture

The point of this is clear. If in an extreme circumstance you're not allowed to redeem your cash from a money market, then they're not appropriate vehicle for on demand deposits. In which case, that changes the entire value proposition of the mmfs. Bank runs happen. It's a fact of life. But allowing the bank to not redeem in full that which they WERE legally required to do is much different issue. Remember that mmfs are not just used by retail investors to park cash. "you will not be recieving a paycheck for the next month in the interest of security and sole discretion of securities and exchange commission. We will keep you posted when our money market funds are released to us."

Wed, 01/27/2010 - 16:13 | 208162 Anonymous
Anonymous's picture

mary mary mary....you can certainly do better than that..

you poor deluded fascist bitch....the little people
do not know how to manage their monies and they need
your collossal bitch wisdom to help...you are such
a wonderful dear....

but really, whore.....if i want my money i want money
and i don't need a hitler lover to keep me from my
property...

you people are so deluded with your minimal brilliance
and disdain for markets i could only expect such an
answer....and why? because this is a prelude for more
statist interventions into the decrepit economy....

fuck you bitch....i hope you die of cancer tonight...
after you have been gang raped by a cia terrorist
squad...

Fri, 01/29/2010 - 01:22 | 210537 Anonymous
Anonymous's picture

Dude, you're an ass.

Sun, 01/31/2010 - 01:55 | 212313 Anonymous
Anonymous's picture

Pay attention folks. The USA is filing up with people who talk and think like this.

Sat, 02/06/2010 - 04:26 | 220273 Anonymous
Anonymous's picture

Is that surprising, considering where things are heading?

Sun, 02/14/2010 - 16:16 | 230823 Anonymous
Anonymous's picture

This most disturbingly rude, crude and hateful person is a good example of why we could use a universal health care system with good psychiatric coverage. This site should have a censure mechanism to block him.

Wed, 01/27/2010 - 13:38 | 207819 Leo Kolivakis
Leo Kolivakis's picture

Stupid rule. Just imagine what will happen if they ever suspend MMFs. the minute they lift the order, WHOOSH!, investors will cash out. Same thing happens when hedge funds impose "gates".

Wed, 01/27/2010 - 13:48 | 207846 peterpeter
peterpeter's picture

First, I'm not sure that you could make an argument that hedge fund gates have not been a remarkable success for their industry.  The gates on many funds came down, and many funds have subsequently removed them without having a new wave of redemptions.

As far as money market funds closing a gate, I don't think you need to speculate about the resolution.  It would play out just like the Reserve Fund, where the assets would be sold off and all investors would get back their pro-rata share.  This is a much fairer distrubition of the assets in a failed fund than would be acheived by allowing redemptions at a $1 NAV against assets worth less than $1, where the earliest requests for redemptions are fully serviced and the latest get nothing...

 

Wed, 01/27/2010 - 14:27 | 207944 Busy-Body
Busy-Body's picture

How is it that your dumbass can be typing on Zero Hedge and also testifying in front of the Financial Services Committee hearing simultaneously?

Get a grip.  Waiting for the day when Zero Hedge allows one to block, in its entirety, comments from a specific Zero Hedge poster.....

 

 

Wed, 01/27/2010 - 14:59 | 208021 Anonymous
Anonymous's picture

You don't get it, do you? If the fund is ever locked, you aren't get 100 cents on the dollar back, not ever.

Wed, 01/27/2010 - 15:17 | 208069 peterpeter
peterpeter's picture

Correct - but at least you will get your pro-rata share.

If the fund is not locked, you either get back 100 cents on the dollar is you were in the front of the queue, or nothing if you're in the back.

If you decide to pool your funds with others, this ruling basically means that you have shared risk with the other pool members, and that in the event of a fund breaking the buck, it will not matter how fast you can run to the gate, but you are instead assured of being equally screwed with everyone else (while helping to mitigate further runs elsewhere).

Wed, 01/27/2010 - 18:03 | 208335 Anonymous
Anonymous's picture

So you are saying you should get out now if want 100 cents for sure??

Wed, 01/27/2010 - 18:40 | 208386 peterpeter
peterpeter's picture

The first rule of a panic is to panic early.

 

Wed, 01/27/2010 - 13:41 | 207822 Cistercian
Cistercian's picture

 Another EPIC WIN for the special enablers of criminality.

 Another EPIC FAIL for the beleaguered masses.

 Thanks a lot, vile putrescent scum.

Wed, 01/27/2010 - 13:41 | 207825 Anonymous
Anonymous's picture

This is getting ridiculous. Beware, several brokerages I'm familiar with (except for Lightspeed) automatically sweep customer cash into MMFs overnight.

- Heretic

Wed, 01/27/2010 - 19:12 | 208417 Anonymous
Anonymous's picture

i just became aware of this thanks ZH and called TD. you can change takes 24hrs. but yes it is only insured for $100,000.
under sipc Securities Investor Protection Corporation. this site is very educational.

Wed, 01/27/2010 - 13:42 | 207831 Rainman
Rainman's picture

Risk free fiat can now be stored under your mattress. APY approximately the same as a risky MMF.

Wed, 01/27/2010 - 13:44 | 207837 Gordon_Gekko
Gordon_Gekko's picture

I am actually quite happy to hear this. Only sheeple keep money in MMF's and they DESERVE what's coming their way.

Wed, 01/27/2010 - 14:02 | 207884 Anonymous
Anonymous's picture

Maybe you can enlighten the sheeple that aspire to evolve to available and preferable alternatives. Or should we call our financial adwisor's?

Wed, 01/27/2010 - 14:15 | 207917 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

GG will tell you Gold. GG probably would also recommend silver.

 

 

Wed, 01/27/2010 - 14:45 | 207991 Gordon_Gekko
Gordon_Gekko's picture

Yup. Physical ONLY.

Wed, 01/27/2010 - 17:37 | 208293 ATG
ATG's picture

Good luck...

Wed, 01/27/2010 - 14:18 | 207927 peterpeter
peterpeter's picture

Buy your own basket of short term paper (corporate or Gov depending on your risk tolerance) just as the money market fund would do.

Alternatively, distribute it amongst as many banks as you need to while staying below the FDIC caps.

I personally think that Treasury only money market funds (Fidelity and Vanguard both have these) are quite safe.

 

Wed, 01/27/2010 - 15:00 | 208025 Anonymous
Anonymous's picture

You do know that the two funds you cite are closed to new investors, right? Also, you do realize that Vanguard had to take extreme measures with their Treasury funds just to keep them going at all.

Wed, 01/27/2010 - 15:33 | 208105 peterpeter
peterpeter's picture

Nope - didn't know that.

So buy SHY instead.

 

Wed, 01/27/2010 - 15:40 | 208120 Anonymous
Anonymous's picture

With the Reserve Funds fiasco, using their Treasury bond MMF was no protection against having one's funds frozen. Neither was using their intestate tax exempt bond fund. The Reserve simply froze ALL their funds with the retroactive approval of the SEC.

Their treasury bond, treasury & repo, and interstate muni bond MMFs were not liquidated for six to eight months after they were frozen.

For more details, see my posts below.

Wed, 01/27/2010 - 17:46 | 208296 ATG
ATG's picture

Until the Treasury unilaterally extends maturities

and curtails redemptions via force majeure.

Folks, this all played out many times before

in Argentina, China, Japan, France, Russia,

Vietnam, Weimar and even the USA,

only we used to have the gold and silver

standard to redeem Continentals and

Greenbacks. Now we just have default-driven

deflation. Accelerating insolvency may wake

more up to King Dollar cash after a dollar scare...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 13:47 | 207843 Chopshop
Chopshop's picture

fantastic work, TD.  thank you for it, sir.

undoubtedly the single most important 'news' item of the day. 

Wed, 01/27/2010 - 21:01 | 207922 WaterWings
WaterWings's picture

"We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares."

Undoubtedly - it is a massive trial balloon in the least.


Wed, 01/27/2010 - 13:54 | 207857 flyfisher
flyfisher's picture

Well done, peterpeter!

Wed, 01/27/2010 - 13:58 | 207869 Anonymous
Anonymous's picture

Obviously now.....

The label must change....and to be sure is a gift to the banks.....

Glass Steagall or not.....core purpose money changes.....

And to be sure...participants are listening....

They even act on whispers of change....

Very telling....

Wed, 01/27/2010 - 13:58 | 207871 Anonymous
Anonymous's picture

Just lining up the funds to line the politicans pockets with when things go south this year...

Wed, 01/27/2010 - 14:01 | 207881 Anonymous
Anonymous's picture

So far all my money is in un-cashed paychecks. In case someone steals them, ya know, I can get them replaced, but obviously not cash. I guess I will have to keep my finger on the pulse so I know when the time is right to cash them out before they go worthless.

Wed, 01/27/2010 - 14:26 | 207943 peterpeter
peterpeter's picture

So you are not only an employee of a company, but all of your assets are effectively short term debt instruments of that same company, paying no interest, and putting you behind debt holders in the event of a corporate insolvency.

Translating that - if your employer goes bankrupt, you have not only lost your job, but all of your savings as well.

And how is this a good strategy???

Wed, 01/27/2010 - 14:50 | 207999 crosey
crosey's picture

PP....what are your thoughts on funds in short ETFs?  Would you be safe so long as you're in the ETF, but then frozen (more or less) the moment you sell?

Wed, 01/27/2010 - 15:12 | 208050 peterpeter
peterpeter's picture

I am not a fan of most short ETFs for most traders.

Most of the underlying assets held by short ETFs (whether levered or not) are swaps.  Some of the time, these swaps are within the same fund family (i.e. the long and short positions between 2 ETFs on the same index might be swaps with each other), however sometimes the swaps are with 3rd parties.

Look at something like SKF:

http://www.proshares.com/funds/skf_daily_holdings.html

It should move inverse to financials, however the underlying asset is a swap with some undisclosed financial company.  So, the value of the index SKF follows may tank, and yet it is not 100% certain that the swap you have partial ownership of in the event of a financial market meltdown would have a counter-party to pay you.

Much better in my opinion to just find a long (un-levered fund) and short it, rather than rely on an ETF provider to enter into a financial relationship with a non-disclosed 3rd party on your behalf.

The short ETFs and all of the leveraged ETFs are great intra-day trading products, but they almost certainly underperform how you would naively expect them to under certain index movements on lengthy time periods.

To see this dramatically, look at the Proshares ultra-long and ultra-short financials together.  You would think that they should be a mirror image of each other, and on a short term horizon (intra-day to a few days, they do just that):

http://finance.yahoo.com/q/bc?s=SKF&t=5d&l=off&z=l&q=l&c=UYG

However, if you look at a long term horizon, things get quite ugly:

http://finance.yahoo.com/q/bc?s=SKF&t=2y&l=off&z=l&q=l&c=UYG

Bottom line - if you are not a very very sophisticated trader capable of calculating NAV for ETFs on your own, you are likely to have poor results with the inverse and leveraged ETFs, which is why there are a multitude of shareholder suits now pending against those ETF providers.

 

Wed, 01/27/2010 - 17:49 | 208305 ATG
ATG's picture

Bingo.

Another factor being that ETFs that reset every

day eventually compound to zero.

Great invention for shearing sheeple...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 14:02 | 207883 Anonymous
Anonymous's picture

To me this equal like a run on banks (which confirm the not too-big-to-fail anyway)and only those who have money outside the banking system are likely to get something...all the others would be wiped out

Frankly I prefer to have a depreciated house or anything else than having nothing...

I'm surprised although about the move in precious metals that are not playing their monetary role...

Wed, 01/27/2010 - 14:34 | 207965 Anonymous
Anonymous's picture

How can they when they're manipulated to scare people away...

Wed, 01/27/2010 - 18:04 | 208330 ATG
ATG's picture

Precious metals decline with deflation without

a Treasury willing to exchange paper money

for them. The only reason Dome and Homestake

made so much money in the 30s was the gold

standard that FDR broke domestically in 1933

and Nixon broke internationally in 1971...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 14:06 | 207894 max2205
max2205's picture

I hear $ moving moving out of money markets as we speak

Wed, 01/27/2010 - 14:17 | 207923 max2205
max2205's picture

"The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act."

When was the last time they PROTECTED THE INVESTOR....never

Wed, 01/27/2010 - 14:20 | 207931 43 Steelie
43 Steelie's picture

Tyler,

I'd love to see a chart showing traffic to this site on days when the market is up and days when the market is down. I bet there is a decent correlation there.

Wed, 01/27/2010 - 14:34 | 207962 Anonymous
Anonymous's picture

Clearly, this regulation illustrates the superiority of regulatory vs deregulatory reform. Under, what we call free market capitalism, one never knew if he was going to be fleeced, who was going to do the fleecing, and who would be enriched by the fleecing. Now, thanks to our regimes'-- I mean Party's-- "final solution" to the capitalist model's "problem", one can have a greater degree of certainty in answering the preceding inquiries into the flaws of your free market system.

Relax. We know better than you. We are here to help. Ask not what your country can do for you; but what you can do for the Party. All hail IngSoc! It's doubleplusgood!

In our brave new world, Afghan poppies will provide enough opium to ensure no dreaded shortages of soma that the capitalist system failed to curtail. And remember the first rule of IngSoc:

1. All citizens are equal.
2. Rule 2 coming soon. Text your vote for the winner of American Idol. $3.99 charges may apply.

The Ministry of Truth
"We're sorry; but according to our calculations-- you ARE happy. Next?"

Wed, 01/27/2010 - 14:35 | 207968 jkruffin
jkruffin's picture

How does this affect someone with a 401k, where money they are paid in a health and welfare fund,  automatically goes into the 401k?  I mean, where I work, we don't have a choice but to put the money left over, after health premiums are paid, into the 401k plan.  Is this rule saying they can take my money?  Someone explain this thru what it means.  For instance, I have 60% in bonds, 40% in fixed income.  Any help appreciated.

Wed, 01/27/2010 - 14:43 | 207983 peterpeter
peterpeter's picture

It should have no impact.

You wrote "60% in bonds, 40% in fixed income".  Since bonds and fixed income are usually used as synonyms in the context of a 401K, I'm assuming you meant either 60% or 40% equities, and the rest in bonds/fixed income.

Regardless, provided that 100% of your money is invested in something other than a money market fund, you should have no impact by this rule.

Wed, 01/27/2010 - 14:55 | 208011 jkruffin
jkruffin's picture

No I wrote it correct,  I don't trust the stock market anymore, and I believe it is way over-valued and prime for the next collapse.  I have 60% in PIMCO Total Return Fund and 40% in what Hartford names Fixed income which pays 3%, which is just a fancy name for money market.  So I guess I would be affected in some way possibly correct?

Wed, 01/27/2010 - 15:14 | 208058 peterpeter
peterpeter's picture

If the value of the assets int he Hartford fund vary over time (i.e. if each share has a different value on each statement - something other than $1.00 per share), than it is not a money market fund.

Wed, 01/27/2010 - 15:18 | 208073 jkruffin
jkruffin's picture

ok thx,  great explanation,  the NAV on the fixed does change daily  currently about 1.27404 and usually climbs some .00xxx daily

Wed, 01/27/2010 - 17:52 | 208310 ATG
ATG's picture

Bond and fixed income funds are a guaranteed

way to underperform inflation and deflation

because of maturities rolled over at lower

returns as well as market risk...

http://www.jubileeprosperity.com/

Tue, 02/02/2010 - 12:54 | 214806 Anonymous
Anonymous's picture

"Guaranteed"? 100% wrong. Compare the 10 year returns of PTTRX and SPX.
People who "bought and hold" U.S. index funds over the past ten years would have done MUCH better in bonds.

Wed, 01/27/2010 - 15:07 | 208036 Anonymous
Anonymous's picture

Every fund at American Funds is bleeding to death and the MM Fund pays 0% interest. I have not lost a dime because I got out of equities before the big plunge. But now I think it is time to move out of the MM Fund into a safer vehicle. American Funds has already closed out their Treasury MM Fund and threw everyone under the bus into riskier agencies and some commercial paper. The handwriting is on the wall here, I just don't know what to run to next. I'm not a fan of PMs, but that's about all that's left, quite frankly.

Wed, 01/27/2010 - 18:07 | 208340 ATG
ATG's picture

Not necessarily.

Physical cash may outperform PMs declining

with deflation...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 23:08 | 208650 Anonymous
Anonymous's picture

Go to American funds on the internet. Look up the
money market funds. Then look at the holdings.

Oops. We found a trash pile of failed AAA junk. What
do you think it's worth?

Wed, 01/27/2010 - 14:43 | 207980 Anonymous
Anonymous's picture

Woo Hoo!

Goggles, check, safety helmet, check, five point racing harnes, check!

Buckle up folks we be going for a ride.

Wed, 01/27/2010 - 14:56 | 208015 Anonymous
Anonymous's picture

TradeStation Securities does not park your cash in a Money Market account.

Wed, 01/27/2010 - 14:57 | 208016 Hephasteus
Hephasteus's picture

Now we just need the stalker-bully fusion.

If you don't like it leave!!

Ok. I'm leaving.

You can't leave. I'll kill you and I got all your money!!

This should be a clearly, purely manipulative situation in about 3... 2... 1....

Wed, 01/27/2010 - 15:00 | 208024 crosey
crosey's picture

Okay, so I put 25% in short ETFs, and they run and run, and I sell.  If the Schapiro Shuffle is on, then the moment I go to cash and the cash is cleared to my broker's MM that night, funds are frozen?  Do I have this right?

Wed, 01/27/2010 - 15:21 | 208077 Anonymous
Anonymous's picture

Yes. As I posted elsewhere, this is exactly what happened to people whose funds were swept into Reserve Funds money market accounts during 2008. Even being invested in low risk treasury or muni funds was no protection. People who correctly went ultrashort lost money when their NON-margin account was frozen and/or had their trades reversed by their brokerage.

The SEC is merely codifying what it did in 2008.

Wed, 01/27/2010 - 17:47 | 208301 Hephasteus
Hephasteus's picture

If you want to get a dog to play with you you tie a steak around your neck. You don't tie a necklace of dog skulls.  This isn't going to work.

Wed, 01/27/2010 - 15:09 | 208044 Anonymous
Anonymous's picture

Most companies have to procure a General Liability policy prior to conducting business. Within the GL policy is coverage for 'employee benefits liability' to cover such unforseen events such as a bookkeeper draining the company retirement program or failing to cover an employee with health insurance when they were eligible for it.

If your retirement program is like mine, through a large pedestrian financial products company beginning with the letter "F", nothing short of termination from your job will let you gain access to your retirement funds.

In the event that the SHTF and I am unable to gain access to the funds in the MMF portion of the account, where a large percentage of the funds are currently residing, I will be notifying the human resources director that I intend to file a claim under the company's GL policy for damages.

Wed, 01/27/2010 - 18:10 | 208343 ATG
ATG's picture

Good luck with that versus cash...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 15:14 | 208059 Anonymous
Anonymous's picture

This is merely a legal codification of what, during the 2008 Reserve Funds fiasco, the SEC was doing anyway. The SEC ignored complaints when the Reserve froze _ALL_ of its money market funds, even those backed by liquid assets such as U.S. Treasury bonds.

After largely ignoring complaints that the Reserve was violating Section 22(e) of the Investment Company Act of 1940, the SEC eventually granted the Reserve an emergency exemption from the statute, I believe under 22(e)(3).
Their interstate tax exempt bond MMF and their Treasury MMF were not fully liquidated until March of 2009, six months after the unrelated Primary Fund went down.

The effect on small investors was devastating. Many retail accounts were frozen despite having used "low risk" treasury or muni bond funds. Other brokerage firms barred investors from selling stocks purchased with funds held in Reserve Funds accounts. Brokerages also reversed weeks of redemptions leaving investors with negative cash balances in their (non-margin) accounts. Investors who deliberately stayed in cash accounts suddenly found that they owed their brokerages thousands.

The SEC ignored the consequences to small investors when they allowed the Reserve to freeze funds for up to six months. They also allowed the Reserve to roll over and/or continue to buy bonds with money from funds that were purportedly frozen. One of the Reserve funds rolled over, for a year, a billion dollar Morgan Stanley tri-party repo, giving MS what became, at for weeks on end, an interest free loan.

Wed, 01/27/2010 - 15:50 | 208132 crosey
crosey's picture

Thanks for your earlier response. Sounds like one needs to aptly time their exit to cash, and quickly move all cash out of any broker MMs, if the SHTF.

Tue, 02/09/2010 - 03:02 | 223000 Anonymous
Anonymous's picture

Do you think you will be able to time that departure when the other shoe drops . . . the next 9/11 brought to you by the same shadow gov that brought the you the first one?

Wed, 01/27/2010 - 15:14 | 208060 Anonymous
Anonymous's picture

Well, so much for the Annuity and so much for the 401k.

We have removed sufficient debt as to actually be able to fly cash only without the employer. If we cut employer loose by going from full time to part time pool, we should be able to cash out the 401k.

But the Annuity is locked for a number of years and unfortunately it is a Tiaa Cref account.

What happens if they get a run and we lose the annuity?

Is it possible to convert a 401k directly to say... physical silver for delivery to our place for us to hold?

Wed, 01/27/2010 - 17:55 | 208316 ATG
ATG's picture

Out of the frying pan and into the fire.

In God We Trust.

All others pay cash...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 15:24 | 208086 Anonymous
Anonymous's picture

My 401k at work has mmf as one of my choices, it's that or one of their stock plans, I would prefer pm's but that is not one of my choice's. The "plan" was able to lose over 20% since late 2007, Wouldn't that suck, lose my job and then can't even receive the fiat money in the "fund"? Thank you as always Tyler.

Wed, 01/27/2010 - 15:57 | 208142 arkady
arkady's picture

Anyone versed in monetary history, is this in any way analogous to the suspenion of specie payment that was predominant in the "wildcat banking" days in the 1800s?

Wed, 01/27/2010 - 17:58 | 208325 ATG
ATG's picture

Absolutely and in the Revolutionary and

Civil Wars.

Gresham's Law:

Bad money drives out good as creditors including

financial institutions fail and fold.

Only this time there is no gold or species backing

for the dollar, and the IOUs are imploding and

defaulting faster than the Fed can print paper

money...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 15:59 | 208143 Anonymous
Anonymous's picture

I cashed out of all of my 401K when the Dow was at 14K -- with the exception of about $100K. I later found that BofA changed the rules regarding 401K withdraws and limited it to a "hardship" withdraw. So, I quit my Executive position at BofA for another nice opportunity and cashed out my last $100K. NO ONE should be able to tell you what you can do with your hard earned savings. I guess their were some unattended consequences of their policy. I suspect the SEC will find similar problems with this latest rule. I'm so tired of this bullsh*t.

Wed, 01/27/2010 - 16:26 | 208182 Anonymous
Anonymous's picture

Do you have the reference to the Federal Register?

Wed, 01/27/2010 - 17:08 | 208248 Anonymous
Anonymous's picture

Just to add a bit of tin to the mix:
My nightmare scenario is that 'risk free fiat' may just be an illusion as well.
On a 3 day weekend, a simultaneous currency revision and bank holiday will be announced.
On the Monday A.M., all old currency will no longer be legal tender, but will have to be exchanged for new currency at some rate of many to one.
All deposits with banks, credit unions, brokerages, will be re-calculated at this new exchange rate and further, any withdrawals in the new currency will be limited to some amount guaranteed to make you very hungry.
Talk about 'captcha'.

Wed, 01/27/2010 - 18:17 | 208350 ATG
ATG's picture

Not one man in a million understands deflation,

when the price of things falls and the value of

dollars rises.

We had the 98% Federal Reserve usury inflation

since 1913 and the 86% Guns and Drugs inflation

since 2001. Now comes deflation. After decades

of deflation there may be enough productivity

and cash savings for people to forget and

borrow again with fractional reserve inflation.

Why else are BB and Cabal holding interest rates

near zero like Japan's two lost decades?...

http://www.jubileeprosperity.com/

Wed, 01/27/2010 - 17:19 | 208265 kujo
kujo's picture

One of the unintended consequenses of a freeze in MM redemptions will be unsettled securities transactions. If I were a risk manager at a B/D I would be considering requiring customers redeems funds from a MM fund prior to placing a buy order to aviod the risk of an unsettled trade.

Wed, 01/27/2010 - 17:54 | 208313 Anonymous
Anonymous's picture

well, that's it for me. every dime i have in cash at any bank or brokerage is being put into loonies tonight.

lunatics are running the asylum.

Wed, 01/27/2010 - 19:23 | 208424 Instant Karma
Instant Karma's picture

A.) I was stuck in the Reserve Money Market Government Fund for 4 months. Frozen to redemption's. Got cashed out by Bernanke for par.

B.) Sometimes even if you think your "cash" in a brokerage or IRA isn't in a money market, it is.

C.) To avoid liquidity problems, just buy some sluggish ETF like UUP or UDN, if you have a call on the US Dollar. Or, you can split your money between UUP and UDN, so you're not in "cash" yet your principle doesn't change.

D). Avoid treasury ETFs like TLT or IEF because if you check the charts they've been volatile.

E). I'm concerned that currency ETFs will go down, again, in a melt-down, as the flight to safety or short US dollar trade unwinds, again! I love Australia but FXA went from 98 to 63 in the 2007-2009 crash. So corrections equal rising US dollar falling everything else, like now.

F.) I flipped out of SDS and TWM today, will reload on some strength. Now short gold via GLL, short silver via ZSL, and short emerging markets via EEV. I'm long some physical precious metals, so this is part hedge and part swing trade.

Thu, 01/28/2010 - 00:36 | 208786 trillionaire
trillionaire's picture

I like your option "C."  I hadn't thought of that.  What do you think of the etf BIL named earlier?

Wed, 01/27/2010 - 19:55 | 208453 Anonymous
Anonymous's picture

This doesn't apply to money market accounts, right? Just mutual funds? Thanks...

Wed, 01/27/2010 - 20:20 | 208479 peterpeter
peterpeter's picture

The other way around.  It does apply to money market accounts.

This all stems from the minor catastrophe (that easily could have become a major catastrophe) when the Reserve money market fund broke the buck.  The Reserve fund held some Lehman short term paper and there was a run to withdraw assets from the fund.  Ultimately, the fund had less cash than shares, but as money markets quote their NAV at a fictituous $1.00, early withdrawls received all of their money back, and the less informed investors in the fund got haircuts.

Before things got too insane, Reserve (in my opinion did the right thing and) closed their gates.  The SEC is now effectively blessing this action and coming up with some sense of a mechanism for doing it again in the future if needed.

It still amazes me that the bulk of commenters here think that this is a bad thing... as the alternative seems far worse to me.

Wed, 01/27/2010 - 20:41 | 208495 Anonymous
Anonymous's picture

A dollar you can't spend is not worth a dollar.

The government is creating the very problem it's claiming to be solving.

Wed, 01/27/2010 - 20:19 | 208478 Anonymous
Anonymous's picture

The discussion has been very near-sighted.

The problem with MMFs is that they became part of the "shadow banking system" without any of the regulatory oversight that chartered commercial banks must endure. They marketed shares as bank demand deposits, with the FDIC disclaimer in fine print.

What the SEC has done, short of requiring the MMFs to adopt daily true mark to market of shares, is to raise a red flag over the MMF business model.

In light of the need for a Treasury Department guarantee of $3 trillion in MMF shares as a result of the Reserve Fund bust, this seems to me like a rather clever, if halfway, response to the problem.

And for all who complain about government making your life difficult, please understand that the investment companies have played the SEC for a patsy for many years on the MMF business.

Wed, 01/27/2010 - 21:04 | 208508 WaterWings
WaterWings's picture

Hmm. Gracias!

Wed, 01/27/2010 - 20:33 | 208488 Anonymous
Anonymous's picture

The discussion has been very near-sighted.

The problem with MMFs is that they became part of the "shadow banking system" without any of the regulatory oversight that chartered commercial banks must endure. They marketed shares as bank demand deposits, with the FDIC disclaimer in fine print.

What the SEC has done, short of requiring the MMFs to adopt daily true mark to market of shares, is to raise a red flag over the MMF business model.

In light of the need for a Treasury Department guarantee of $3 trillion in MMF shares as a result of the Reserve Fund bust, this seems to me like a rather clever, if halfway, response to the problem.

And for all who complain about government making your life difficult, please understand that the investment companies have played the SEC for a patsy for many years on the MMF business.

Wed, 01/27/2010 - 21:09 | 208511 Anonymous
Anonymous's picture

Any reason not to take money from my US brokerage account and move it to a Canadian bank Any restrictions on Americans parking their money in Canadian banks?

Thu, 01/28/2010 - 02:00 | 208845 dogbreath
dogbreath's picture

Royal Bank 

 

1 800 769 2511

They sell PM's too

Wed, 01/27/2010 - 21:16 | 208516 mtguy
mtguy's picture

Ok, so I'll ask a dumb question now. Isn't this being done so that Uncle Ben will have a guaranteed market for his treasury sales which at some point are going to run into a road block when foreign countries stop buying the shit due to the low interest rates and ever-shaky position the US is putting itself into? Isn't the "freeze" language just a cover for the language regarding the mandatory holding of Treasuries?

Of course, once again, they didn't think past their Pinocchio noses, so the unintended consequence is to have a run on MM funds! 

Also, ATG, is it? I find it hard to believe precious metals will take a long term huge dive, as we are one country in a big wide world. Are you saying our deflation in the US will create world-wide deflation? I don't buy it, but feel free to make your argument as I don't profess to have the wisdom of, say Uncle Ben and Turbo Timmy (cough, cough, barf) 

Wed, 01/27/2010 - 23:07 | 208649 TurboBob
TurboBob's picture

My question exactly.  Is this a way to encourage folks to put their liquid cash into treasuries?  To increase treasury demand?  And what's the benefit?  MMF's are already in treasuries.  It would be like moving money from one pocket to another with no net gain in treasury demand.

Wed, 01/27/2010 - 21:18 | 208517 Catullus
Catullus's picture

Page 93 of the sec's PDF. Starts the section "fund liquidation".

Do NOT follow this link or you will be banned from the site!