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US MM Funds - The dumbest money of all
The 'crap out' in stocks may scare us to death but it will be a freeze up in short term liquidity that will kill us. We’re getting closer by the day.
The liquidity issues that are emanating out of Europe are extending around the world very quickly. One area that I continue to think is vulnerable is the US money market funds. There is a good reason to worry about these funds. After all, this is the dumbest place on earth to put a dime. Consider the numbers.
The average cash MMF is yielding an 1/8th percent per year. There’s tax on that too. The net comes to about 10 basis points. For every $100 you have in a cash fund you have income of ten-cents. For this lousy dime you are taking risks. There is this assumption that a money fund can never be worth less than 100. There is no truth to that. It happened three years ago.
What if a money fund “broke the buck” and all of a sudden it was worth only 99%? The loss would only be $1. But that $1 is also equal to ten years worth of interest. From a gamblers perspective you are betting 100 dollars to win only 7.
How much risk should one be willing to take when the return is only 10 basis points? Easy answer. Zero.
You might think that there is no chance for a money fund to trade at 99. If so, consider the words of Boston Federal Reserve President, Eric Rosengren, in a July, 25 2011 interview with Reuters:
A "combination" of solutions will be needed to reduce the risks faced by the short-term funds and their investors -- including one resisted by many fund marketers that would no longer fix the net asset value (NAV) of a fund share at $1.
"We still need to make further progress in reducing the risk that money-market funds could be a source of instability resulting from an unanticipated credit shock."
In a speech at Stanford University on June 3, Rosengren said money funds could be affected by European debt woes.
The 4+% drop in stocks today was a sideshow for what is happening in the funding markets. The important news came from BNY Mellon. (Zero Hedge link for details). BONY is now charging to take deposits! We also have Tbills with negative yields. The only conclusion? Money has a negative value. If that is the case then money funds will break the buck. I think we’re pretty close to the edge with this.
If you accept the premise that Zero Return must also equal Zero Risk then what is the solution to the current crisis in the funding markets? Simple. Charge more for money. If the return is raised, the appetite for risk will rise from zero. Problem solved.
The one thing that is absolutely not going to happen is an increase in basic interest rates. For there to be a balance that attracts short term funding and stabilizes things in the capital markets I believe the Fed Funds rate would have to be about 1.5%.
Not only is that not going to happen we might even get the reverse. The Fed could easily attempt to buy some market peace by issuing a statement that the policy of zero interest rates would be extended for a minimum period of one year. I consider this to be a “high probability" to happen in the next 30 days.
My conclusion is that the Fed is going to do exactly the opposite of what is needed. Their action will precipitate a new round of instability. Funding sources that are now under stress are only short date financing. One week to one month is where the problems lie today. But the Fed’s action could very well push out the instability to impact longer maturities like 3 and 6 months. Should that happen, the lights will go off pretty quickly.
Bernanke’s no dope. He must see what is happening in front of his eyes. He must understand that ZIRP is at the heart of the problem. But he is pregnant with ZIRP and his "baby" is going to term.
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How do you guy's think your BETTER off, w/a Self Directed IRA, as opposed to a regualr IRA?.
Either of the two, can and will be locked down, confiscated, same as rollover 401k's, WHERE do you put that cash?.
I am ASKING................both, the IRA's and 401k's YOU have in private accounts, taken from employer plans, and deposited in Banks?.
I have purchased PMs,supplies, self protection items, 100% debt free, owe nothing to anyone, and still have what I consder a substantial cash amount in IRA's and a 401k...............
As far as I am concerned, we are at Defcon 3, and RISK on, is where we are from here to the END.
You say, cash.................in hand.
Cash in hand is still fiat shit..............shit is shit.
So does one go 100% ALL in PM's?............since there are NO safe haven in any currencies worldwide,what are your alternatives.
Someone please( BRUCE) PLEASE respond where to pull these cash funds, and store them(as there is NO way to make a profit on any cash now.)
If you are concerned, you have options. Put the money in a checking account (under $100k). This is a good as Tbills as it is full faith and credit guaranteed by Uncle Sam.
Over 100k buy some three month tbills.
You will make 0 return. But you will have dry powder if your fears are justified.
Good insight on the interest rate rise-counter intuitive, but in my opinion absolutely necessary and yes, not going to happen.
My bank starts charging to take my deposit, I'll just move my balance to a competitor that doesn't.
BONY has been wealthy man's bank for a very long time, their acquisition of Mellon, which has always been a rich man's bank, only cements their rep as a bank for the well-to-do, which has just confirmed that they would like you to move your money out of their bank by charging you to deposit money there.
They are hardly an example of the problem you notice about Money Market funds, which if anyone has been paying attention, should have moved their money into better return vehicles which abound, keeping minimum balances in traditional checking accounts.
I have actually thought about prepaying bills instead of having money parked in the bank. Would rather have prepaid utilities and property taxes.
Good heads up-the problem is that when all is said and done, we are all fucked. What should I do, buy a huge safe and hoard dollar bills? Don't mention the other stuff, I don't talk about it anywhere.
Firms like Fidelity or Vanguard or T. Rowe etc, will sell every stock in every portfolio before they would allow their MM's to break the buck.
So, I would expect a stock market crash to increase the liquidity necessary for these types of firms to make sure wether it represents true value or not, a $1 share price to their MMs. I'd say keep it simple, downgrade or not, US Treasury MM is the only place I'd store cash. Unfortunately, all Treasury MM's have been closed to new investors for awhile.
I totally agree that MM's are a shitty investment, but that's not their purpose anyway.
Vanguard now imposes as a 10K daily maximum to xfer into their UST MM. I asked the Rep to show me where in the prospectus is this rule; after heeping me on hold for 10 min,they finally admitted they just invented this policy out of thin air, pretty much like Ben does when he starts up the ink to increase the money supply..
scuse me, to transger IN? when things get tight it's usually a rule about redemptions? think this proves Bruce has the bizarro headline here. UST MM's put limit on subscriptions, dont' go there?
Well, for those already in that fund, that's good. It happened awhile back, as we, er they anticipated a huge inflow from subprime laden, commercial paper etc. MM's.
When they impose a $10,000 daily on REDEMPTIONS, well...I don't want to think about that yet!
Delete
The ONLY chance of hope that we have is if the Markets trip their 10% down breakers EVERY SINGLE DAY NEXT WEEK!
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Thanks for the reminder. I need to get the last bit of cash out now.
Just the nudge I needed to clear out the brokerage account.
The solution no one is mentioning? Buy some ATM (at the money) puts on European banks like BCS, DB, BBVA, RCS, UBS etc. Then when your MM fund breaks the buck because these banks fail you can buy the stock on the market at say 10 cents/share then excercise your put (I have BCS 18 puts) and sell it at $18! Or just sell these really valuable puts to someone stupid enough to own European bank shares. Should cover any losses unless all options contracts are voided (which is quite possible), but then food guns and medicine on hand is what you want to have. I think all 401K or IRA should consist only of long dated puts on fake "companies" like AIG, BAC, C, GM, OPEN, MS etc. and calls on AAPL, CF, GLD and SLV. I know mine does! Its all a bunch of fake numbers anyway-your brokerage statement that is!
John Coltrane: does your IRA provider really allow you to purchase puts? Thank you for your response.
Look at a self-directed IRA.
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That's what I have now and it's great.
Self-directed IRA, Bitchez!
They have some limitations. You can't use margin, so exercising the puts isn't usually possible.
Thank you all for sharing.
Bernanke's 3 official mandates are to ensure stability in financial market, full employment and stable prices (and now support RUT). His unofficial and far more important objective is to protect the bankers above all, and that means ensuring the mountain of interest rates and other derivatives do not implode. If the short term commercial market or europeans cannot access dollar funding because of run in money market funds as a result of negative rates, Ben will extent top them directly swap lines now already in place with ECB, SNB etc. Ben has all the powers from 2008 to buy the CPs of commercial companies (if they are friends of politicians). But the key is to make sure the shareholders of the Fed remain highly profitable thru any crises.
The calculation in this article is absolutely hilarious! The value of the dollar falls at least 10% every year... at least. Therefore, even if they get 5% interest on their checking account they lose 5% per year.
Anyone who doesn't have their savings in real, physical gold, silver, seeds, supplies or productive equipment is a complete and utter fool who is just begging for a miserable life (from a financial perspective at least).
Just consider where these predators are headed, and want to head. These big-shots, fat-cats, hyper-predators only care that they have the reigns of the digital printing press. They only care that they are part of the predator-cabal who is part of the crowd who has unlimited access to debt "money" created at zero expense out of thin air. They understand they need not produce anything whatsoever to live the life of riches and power - they only need to stay on the good side of heir doktor doktor Bernanke and crew, and/or their bakers dozen of reserve bank outlets and/or their owners (GoldmanShafts, JPMoronsChaste, etc). Their entire future is 100% completely and utterly tied to the digital printing press and unlimited "bailouts" and QE-infinity. They know what is obvious. It doesn't matter how far you go in debt as long as your buddies at the fed will lend you more. It is like being hooked on drugs, but having a drug dealer that extends unlimited credit - the happy days never end.
Until they do.
We can't wait.
Wsj posted short term spike in money rates on wed. Stock market crushed on thursday. The irony of a lack of liquidity in this environment should be lost on no one and terrify everyone. As bernanke points out "i'm buying debt not printing money." in theory adding reserves such as this should encourage lending--which it has --unfortunately all lending has been done to the government. So much for that theory. Methinks there's a time constraint on this homework as well. Markets will call the policy a failure long before policy makers can/will.
Stupidus/precipus....god/reality......coexistence is futile.
maybe this will send you in the right direction. looks like we're in deep doo-doo.
http://www.youtube.com/watch?v=JehjqlzXwIQ&feature=player_detailpage
Comrades: Silver coins in your safe box. No worries. Over time will be worth almost as much as ammo, or toilet paper for barter. I have read that there are folks stocking up on cigarettes, as well. 1 cig = (1) .22 round. See...easy peasy!
Think long and hard about it.
I suggest silver bullets. That's the best two-fer I can think of. Okay, the second best. If you don't need to shoot anyone, you can trade them as silver. If you do need to shoot someone, you know they'll stay dead, since silver bullets even kill central banksters.
Silly rabbit. There *are* no silver bullets.
if you shot someone with a silver bullet it will fight infection. It will help save the life of whomever you plugged! and that is not what we want with Lobbyists or Bankers!
NICE!!!!!!
If you can see through the bull, you already know one of America’s most immediate problems is high unemployment – not “out of control” government spending. But many in Congress aren’t interested in creating jobs.
No, Republicans have drug out the debt limit debate for weeks, pretending to battle over “spending sprees” and Obama's “tax obsession” to disguise the fact that the GOP is busy cutting jobs – the exact opposite of saving the economy.
The GOP is betting that if unemployment stays high, recovery stalls and we risk default, they’ll have an easier time booting Obama out of the White House, doing away with the biggest obstacle they face in their quest to:
• Unravel Medicare,
• Repeal environmental standards,
• Eliminate consumer protections, and
• Enact even deeper tax cuts for the wealthiest 1 percent of Americans.
Watch Senate Minority Leader Mitch McConnell’s brazenly admit it:
Forget about the economy and jobs! Forget about what Americans say they want! We will stop at nothing to undermine the Democratic President!
http://www.dailykos.com/story/2011/07/27/999412/-Cut-Jobs5-Part-Plan-to-Rig-the-2012-Election
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But the TRUTH is the President is a Lobby Whore just like the Republicans!
This Fight is a Dog and Pony Show!
No Jobs Created or Tax Breaks for Jobs Created in the Debt Bill!
But You have a Super Secret Committee!
But You have continuing Tax Breaks for the Super Wealthy and Corporations!
Washington DC is Dog and Pony Show that is Owned by Lobby's that DO NOT REPRESENT "We the People"!
JW, how would you create jobs if in charge?
we have a Brave New Soul Among us that Demand to be heard! and so it shall be!
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THE FORMER PRESIDENT OF THE WORLD BANK, JAMES WOLFENSOHN Explains how Americas Production / Manufacturing has been and is continuing to be cut into pieces and moved off shore. This is very much worth your time, if you are from the West or planning on living in the West.
http://www.youtube.com/watch?v=mOwZwkhFemQ
America was sold off to the World.
***** “Over the last ten years, China has mounted the biggest challenge to the U.S. manufacturing sector ever seen, threatening producers of steel, chemicals, glass, paper, drugs and any number of other items with prices they cannot match. Not coincidentally, the United States has lost an average of 50,000 manufacturing jobs every month during the same period.” *****
http://blogs.forbes.com/beltway/2011/02/14/intelligence-community-fears-u-s-manufacturing-decline/
The United States has shipped over 7 Million Manufacturing Jobs to China in the last 11 years.. along with those 7 Million Manufacturing Jobs the Tax Base that those 7 Million Manufacturing Jobs Represent. If you look at a 25% tax bracket for $50,000 dollar average pay.. over 10 years.. works out to $7 Trillion Dollars or Half our National Debt.
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which is jus the tip of the iceberg..
so with being stranded in the Middle of a Planned Wealth Transfer the only reasonable answer that does not Hurt "We the People" or the strength of the Country going forward and dare I say would in fact allow for the funds to rebuild our infrastructure!
http://en.wikipedia.org/wiki/Executive_Order_11110
http://www.youtube.com/user/bstill3
http://www.youtube.com/watch?v=eoosS9TJ0NQ&feature=channel_video_title
I could go on but this should get you to first base..
Take the power away from Wall Street and ALL of America the Beautiful Money will stop going to Wall Street and ONLY Wall Street! Make it more profitable to invest in the longevity of the Country than it is profitable to invest in the quarterly returns of the Wall Street Banks is a FANTASTIC!! First Step! Think of it as shovel ready on steroids!
Let me know how I can help you understand or share this information.
1470 US millionaires paid no tax in 2009
http://www.presstv.ir/detail/192544.html
US millionaires are now paying about one-quarter less of their income in federal taxes than they did in the mid 1990s.
Really wish you were wrong.
Sorry ... most immedate problem is who makes the cut on America's Got Talent ... no really
America's most immediate problem is not unemployment. It is a fiat dollar that is becoming more and more meaningless, a government that wants more and more power, and a financial-political class that profits from both of those things. Legislated job 'creation' (which is just another way to guarantee damaging distortions in the economy) is a band-aid solution that does nothing to address the real problem.
The GOP is bad, but the Democrats are equally bad. Both are the party of big government, and both are to blame for our dying economy, as neither has opposed the continual consolidation and centralization of power at the Federal level and in the financial industry which funds the government's follies.
Whew. The Daily Kos says it, so it's GOT to be true.
Next thing you know, someone might refute this with information from World Net Daily, also a bastion of journalistic integrity and THEN what am I supposed to think?!?!?
Isn't the onion a better source of truth than the Kos? This post is the first time I've read anything from the Kos-its like its insane but not funny. Its like the Huff PO, eh?
Quoting myself.. fiirst sentence. "But the TRUTH is"
I guess people can NOT! read 40 or 50 words in 10 - 15 seconds? I can in about 5 seconds.. but skimming even to the in BOLD response to the KOS bullshit is even to, too much to ask.
It is a wonder how anyone in this world can communicate when everyone knows it all already and can NOT be bothered to digest a 20 second in total (for the slow among us) thought shared.
The written word is a waste in todays world, anyone who cares or who would try to compete against KOS and / or other might as well just give up and let the stupid wash over everyone unabated.
Ha Ha. Even better, instead of WND, he (JW n FL) immediately posted an article from "PressTV", the Iranian propaganda outlet! Bad company corrupts good character.
1470 US millionaires paid no tax in 2009
http://www.presstv.ir/detail/192544.html
US millionaires are now paying about one-quarter less of their income in federal taxes than they did in the mid 1990s.
Lobby Debt Deal Fail
http://www.presstv.ir/detail/192462.html
'US debt deal epic financial blunder'
The best Congress Money can Buy!
Does NOT! Represent "We the People"!
http://edition.cnn.com/video/?/video/us/2011/08/03/arena.naked.for.wall....
the protests have begun in a gentle manner.
The Sooner that the Electoral College starts voting with bullets the better off "We the People" will be!
Bruce,
I thought the September 2008 Armageddon moment was based on $ 2 Trillion trying to be withdrawn from the MMF's over the period of 2 hours. Doesn't the FED have some authority over the MMF's? If they do, wouldn't they treat any large trend out of the MMF's as "a run on the bank" and just freeze the assets in place for a 30 day cooling off period?
barliman
I almost lost 60% of my wealth in The Reserve Fund....be careful with these MMF.
This issue is the elephant in the room
Around half of MMF are invested in European bank debt according to the WSJ:
http://online.wsj.com/article/SB10001424052702304231204576406142247018046.html
So what?
http://www.youtube.com/watch?v=pD8viQ_DhS4
MMFs are not money. Money can not be defaulted upon. Thus, you have the ingredients for the fastest, largest bank run imaginable. Ahhh....the idiotic wonders of modern high-finance.
I seem to remember an article on Zerohedge from 2009 outlining the details of new legislation that would give the federal reserve the power to cancel or stop money market fund withdrawals.
Can someone dig that up? Perhaps this is the moment that was created for.
http://www.youtube.com/watch?v=1oYBWQcVs7E
Talking about Jim Grant who is the creme' of the crop.
James Grant, editor of Grant’s Interest Rate Observer, talks about the impact of new regulations on the ability of U.S. banks to offer credit. He also discusses the exposure of U.S. money market mutual funds to the sovereign debt crisis in Europe and the outlook for resolution of the crisis.
http://www.investmentpostcards.com/2011/06/21/james-grant-on-u-s-bank-regulations-european-risk/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+f
http://money.msn.com/currency/mutual-funds-with-return-free-risks-fleckenstein.aspx
In the most recent issue of Grant's Interest Rate Observer, an article headlined "Big fat zero" points out that the five largest money market mutual funds (three Fidelity funds, one Vanguard and one BlackRock), with combined assets of about $400 billion, have about 41% of their money in European bank debt.
As an unintended consequence of the Federal Reserve basically robbing savers of any reasonable choices (to help bail out the banksters, who are where they are because of their own greed and Fed incompetence), the money-market industry has turned to Europe to find enough yield to pay themselves and offer their fund holders modest returns (though in many cases the returns don't even qualify as modest).
As an example, the Fidelity Cash Reserves Fund (FDRXX) has more than 45% of its assets invested in Europe. For the risks associated with that, investors are getting paid a whopping one basis point (0.01%, or one one-hundredth of 1%). The yields for the other funds mentioned in the article are not much better, while the risks are, of course, about the same.
The point in all of this is that because no one is being compensated no matter where they put their savings, there is really no point in taking any risk at all. Thus, it probably makes sense for those who can to shift their holdings to Treasury bills.
Money Market Funds No Longer the World’s Safest Investmentshttp://www.youtube.com/watch?v=XfeUUDnqgtw
Jim Grant on Bloomberg - 20th June 2011
On Money Market Funds and why looking for yeild in Europe is a BAD BET FOR ALL!
I have some money. Not a lot of money but a little that I want to loan out so that I can help someone that needs it and maybe make a little for myself in the process. Believe it or not, that is the basis for our entire SYSTEM. When the system functions normally, I get a decent return say 3-5% per year and all is right with the World. When the system is corrupt, governments piss away my money on stupid projects just to piss away my money and pay off their friends and I get pissed! Now I am not so willing to loan out my money any more and I take it back. I put it away where YOU will never see it again until you offer me a MUCH, MUCH, HIGHER return say 10-15% or more per year like Gold and Silver or I just hide it until I feel it's safe to come out again. This may take a LONG, LONG, time. Hope we all make it.