Cracks emerging in money markets?

Discussion of the Cash portion of the Permanent Portfolio

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Tortoise
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Cracks emerging in money markets?

Post by Tortoise » Tue Sep 17, 2019 11:40 pm

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Smith1776
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Re: Cracks emerging in money markets?

Post by Smith1776 » Wed Sep 18, 2019 4:46 am

Very interesting stuff.

This really brings back to my mind that old question that everyone has been asking for the past 10 years: what will be the cause of the next panic in financial markets?

I'm willing to opine here. I think the epicentre of the quake will be in China.
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process." - Alan Greenspan, 1966
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Re: Cracks emerging in money markets?

Post by Kbg » Wed Sep 18, 2019 8:59 am

I'm curious as to where all the negative interest stuff is going to go which to me is a crisis all by itself. It literally makes no economic sense. (Or if someone has seen a good explanation, please post it. I would enjoy reading about it.)

Perhaps it's as easy as there is soooo much money in the world created by the central banks that cash is now trash???
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Re: Cracks emerging in money markets?

Post by shekels » Wed Sep 18, 2019 9:21 am

Kbg wrote:
Wed Sep 18, 2019 8:59 am
I'm curious as to where all the negative interest stuff is going to go which to me is a crisis all by itself. It literally makes no economic sense. (Or if someone has seen a good explanation, please post it. I would enjoy reading about it.)

Perhaps it's as easy as there is soooo much money in the world created by the central banks that cash is now trash???
Red Dollars and Green Dollars and who controls which. Got me thinking again on what is Money vs Currency.

https://www.macrovoices.com/podcasts-co ... s-podcasts
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Re: Cracks emerging in money markets?

Post by dualstow » Wed Sep 18, 2019 10:23 am

Kbg wrote:
Wed Sep 18, 2019 8:59 am
I'm curious as to where all the negative interest stuff is going to go which to me is a crisis all by itself. It literally makes no economic sense. (Or if someone has seen a good explanation, please post it. I would enjoy reading about it.)

Perhaps it's as easy as there is soooo much money in the world created by the central banks that cash is now trash???
I know less than you, but just to get the conversation moving on NIRP, isn’t it to keep a population from excessive hoarding? And to keep banks lending? I guess the alternative would be for banks to charge a flat fee for money storage but maybe that’s only an illusory alternative.

They say the way to make money during Japan’s lost decade was to sell home safes.
RIP Dusty Hill and be well, Bob Odenkirk
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Re: Cracks emerging in money markets?

Post by Tortoise » Thu Sep 19, 2019 3:28 pm

Fed intervenes in money markets for the third day in a row...

https://www.bloomberg.com/news/articles ... raight-day
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Re: Cracks emerging in money markets?

Post by ochotona » Thu Sep 19, 2019 7:51 pm

How can this hurt Joe Average investors? I don't go around all day thinking about the repo market. Might MM funds "bust the buck"?
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Re: Cracks emerging in money markets?

Post by Tortoise » Fri Sep 20, 2019 12:21 am

ochotona wrote:
Thu Sep 19, 2019 7:51 pm
How can this hurt Joe Average investors? I don't go around all day thinking about the repo market. Might MM funds "bust the buck"?
Since the repo market is apparently the "plumbing" of the banking world, it's not very sexy and hardly anybody (including us) pays much attention to it.

I really don't know enough about the repo market to know what would have happened if the Fed hadn't stepped in. All I know is that the Fed has injected $203 billion in the past three days, which is 48% of the size of the 2008 TARP program ($426 billion). And it may continue.

And yet this story is still just a blip in the headlines. Interesting.
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Re: Cracks emerging in money markets?

Post by pugchief » Fri Sep 20, 2019 7:37 am

Fidelity MM (SPRXX) which generally yields 0.25% or so more than their Treasury MM (FZFXX) is now paying 0.1% less.

I wonder if there is more to be concerned about than we think?
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Re: Cracks emerging in money markets?

Post by dualstow » Fri Sep 20, 2019 7:49 am

pugchief wrote:
Fri Sep 20, 2019 7:37 am
Fidelity MM (SPRXX) which generally yields 0.25% or so more than their Treasury MM (FZFXX) is now paying 0.1% less.

I wonder if there is more to be concerned about than we think?
Hmm, Vanguard Prime is still yielding more (2.08%) than Vanguard treasury MM (1.97%). Although, Prime’s expense ratio is 0.16% while treas is 0.09%.
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Re: Cracks emerging in money markets?

Post by jhogue » Fri Sep 20, 2019 9:58 am

pugchief wrote:
Fri Sep 20, 2019 7:37 am
Fidelity MM (SPRXX) which generally yields 0.25% or so more than their Treasury MM (FZFXX) is now paying 0.1% less.

I wonder if there is more to be concerned about than we think?
Don't buy repos. Don't buy money market funds "juiced" with repos. Don't be sorry. Buy Treasurys.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by shekels » Fri Sep 20, 2019 9:59 am

ochotona wrote:
Thu Sep 19, 2019 7:51 pm
How can this hurt Joe Average investors? I don't go around all day thinking about the repo market. Might MM funds "bust the buck"?
Some institution(s) needed cash.
IF there was no short term cash for them to borrow well think possibly Lehman Brothers.
Liquidity is needed for the Market or there will be no Market.
I guess we will see months down the road, maybe what is all about.
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Re: Cracks emerging in money markets?

Post by shekels » Fri Sep 20, 2019 10:21 am

shekels wrote:
Fri Sep 20, 2019 9:59 am
ochotona wrote:
Thu Sep 19, 2019 7:51 pm
How can this hurt Joe Average investors? I don't go around all day thinking about the repo market. Might MM funds "bust the buck"?
Some institution(s) needed cash.
IF there was no short term cash for them to borrow well think possibly Lehman Brothers.
Liquidity is needed for the Market or there will be no Market.
I guess we will see months down the road, maybe what is all about.
In its recent quarterly report, the Bank of International Settlements, or BIS, raises three crucial points for global liquidity:

Global outside-US dollar denominated debt has risen to a record. aka"RED DOLLARS"
The role of non-bank institutions on providing funding has increased.
The composition of international credit has shifted from bank loans to debt securities.

If someone wants a little light reading.
https://gnseconomics.com/en_US/2018/10/ ... liquidity/
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Re: Cracks emerging in money markets?

Post by Kbg » Fri Sep 20, 2019 10:35 am

Tortoise wrote:
Fri Sep 20, 2019 12:21 am
ochotona wrote:
Thu Sep 19, 2019 7:51 pm
How can this hurt Joe Average investors? I don't go around all day thinking about the repo market. Might MM funds "bust the buck"?
Since the repo market is apparently the "plumbing" of the banking world, it's not very sexy and hardly anybody (including us) pays much attention to it.

I really don't know enough about the repo market to know what would have happened if the Fed hadn't stepped in. All I know is that the Fed has injected $203 billion in the past three days, which is 48% of the size of the 2008 TARP program ($426 billion). And it may continue.

And yet this story is still just a blip in the headlines. Interesting.
Source?
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Re: Cracks emerging in money markets?

Post by ochotona » Fri Sep 20, 2019 11:37 am

jhogue wrote:
Fri Sep 20, 2019 9:58 am
pugchief wrote:
Fri Sep 20, 2019 7:37 am
Fidelity MM (SPRXX) which generally yields 0.25% or so more than their Treasury MM (FZFXX) is now paying 0.1% less.

I wonder if there is more to be concerned about than we think?
Don't buy repos. Don't buy money market funds "juiced" with repos. Don't be sorry. Buy Treasurys.
I think that's a really good takeaway message. A Money Market Fund is delicious, like a sausage is delicious... there's all kinds of %*&# which got stuffed into the casing. I am still sore about the failure of Schwab YieldPlus Bond Fund during the financial crisis, it was marketed as being a safe cash-like alternative. I did lose some money, but we settled.

US News and World Report, 12/30/2009 - Schwab YieldPlus. The theory behind ultrashort bond funds is astonishingly simple: Given the short durations of their holdings—six months is the average maturity—the funds should not lose much value even in tough times. Schwab, however, managed to pull off the seemingly impossible when YieldPlus lost an astounding 35.4 percent in 2008. The average ultrashort fund, meanwhile, lost just 7.9 percent that year. Unlike many of its peers, YieldPlus had heavy exposure to risky mortgage-backed securities that imploded during the downturn. "Schwab YieldPlus is one of the all-time great fund debacles," says Kinnel. "It was an ultrashort bond fund that they were pushing as an alternative to a money market fund. ... People expected that if it was going to lose any money, it was going to lose half of 1 percent or something."
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Re: Cracks emerging in money markets?

Post by Tortoise » Fri Sep 20, 2019 12:04 pm

Kbg wrote:
Fri Sep 20, 2019 10:35 am
Tortoise wrote:
Fri Sep 20, 2019 12:21 am
I really don't know enough about the repo market to know what would have happened if the Fed hadn't stepped in. All I know is that the Fed has injected $203 billion in the past three days, which is 48% of the size of the 2008 TARP program ($426 billion). And it may continue.
Source?
Source for the Fed's injected $203 billion (and still going): https://markets.businessinsider.com/new ... 1028537926
"The central bank has injected a total of $203 billion into markets this week — $75 billion on both Wednesday and Thursday, and $53 billion on Tuesday."

Source for TARP's $426 billion: https://en.wikipedia.org/wiki/Troubled_ ... ef_Program
"TARP recovered funds totalling $441.7 billion from $426.4 billion invested..."
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Re: Cracks emerging in money markets?

Post by Tortoise » Fri Sep 20, 2019 12:14 pm

Wow, I just checked the fund description for Vanguard's Federal MM fund (VMFXX), and currently 20% of its holdings are repos! :o

I have a big chunk of cash invested in VMFXX out of convenience since it's my settlement fund and Vanguard doesn't allow using their Treasury MM fund (VUSXX) as a settlement fund. (Didn't want one extra step when I want to access cash from Vanguard.)

The current MM repo market turbulence has me worried, so I think I'll be transferring most of my cash out of the settlement fund to get the repo stink off of it.
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Re: Cracks emerging in money markets?

Post by jhogue » Fri Sep 20, 2019 12:21 pm

Thanks for the report on Schwab YieldPlus. The analogy to sausage making is apt.

I owned Strong Ultra Short Bond Fund in the 1990s, with the usual dumb desire to chase yield. After I learned that the fund manager went to jail for securities fraud, I decided to get out. In addition to the obvious headaches, I also had to pay a CPA to help me figure out the capital gains and losses.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by pugchief » Fri Sep 20, 2019 12:24 pm

jhogue wrote:
Fri Sep 20, 2019 12:21 pm
Thanks for the report on Schwab YieldPlus. The analogy to sausage making is apt.

I owned Strong Ultra Short Bond Fund in the 1990s, with the usual dumb desire to chase yield. After I learned that the fund manager went to jail for securities fraud, I decided to get out. In addition to the obvious headaches, I also had to pay a CPA to help me figure out the capital gains and losses.
Didn't they track that for you? Or was that before the days when brokers did that?
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Re: Cracks emerging in money markets?

Post by jhogue » Fri Sep 20, 2019 12:53 pm

I owned it directly through the fund company, back in the old days and before brokerage accounts became fund supermarkets.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by jhogue » Fri Sep 20, 2019 1:12 pm

jhogue wrote:
Fri Sep 20, 2019 12:53 pm
I owned it directly through the fund company, back in the old days and before brokerage accounts became fund supermarkets.

Sorry, I was a little fuzzy (or slightly senile?) on the details. The company went defunct in 2004 after paying $80 million in restitution to their investors. The founder and CEO, Richard Strong, avoided jail time by paying a personal $60 million fine, the firm admitted wrongdoing, and Mr. Strong was banned from the securities industry for life.

The proud new owners of the firm were none other than the TBTF banksters at Wells Fargo, also much noted by Senator Elizabeth Warren and the members of the Senate Finance Committee for the unusual quality of their care and concern for their customers. How is that for the opposite of a warm fuzzy from the people who are looking after the American people's money?

Here is the citation:
https://en.wikipedia.org/wiki/Strong_Capital_Management
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Cracks emerging in money markets?

Post by dualstow » Fri Sep 20, 2019 1:29 pm

Tortoise wrote:
Fri Sep 20, 2019 12:14 pm
...Vanguard's Federal MM fund (VMFXX), and currently 20% of its holdings are repos! :o

I have a big chunk of cash invested in VMFXX out of convenience since it's my settlement fund and Vanguard doesn't allow using their Treasury MM fund (VUSXX) as a settlement fund. (Didn't want one extra step when I want to access cash from Vanguard.)
...
I know what you mean, but it's just an extra day. I have almost everything in treasury MM and I admit have missed an auction or two because of the extra step.
Going the other way, if I truly need to transfer from another MM to treasury, I think it's too late.
RIP Dusty Hill and be well, Bob Odenkirk
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Re: Cracks emerging in money markets?

Post by Tortoise » Fri Sep 20, 2019 1:36 pm

dualstow wrote:
Fri Sep 20, 2019 1:29 pm
Going the other way, if I truly need to transfer from another MM to treasury, I think it's too late.
Why is it too late?
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Re: Cracks emerging in money markets?

Post by dualstow » Fri Sep 20, 2019 2:01 pm

It's not too late now. I mean, I already have just about everything in treasury. If it were in prime or federal and I needed -- not wanted, but needed -- to move it to the treasury MM, it would mean something's wrong, e.g. breaking the buck.
RIP Dusty Hill and be well, Bob Odenkirk
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Re: Cracks emerging in money markets?

Post by ochotona » Fri Sep 20, 2019 8:50 pm

FYI, the Schwab US Treasury cash fund is SNSXX, I'm discontinuing the use of the one loaded with repo agreements which is SWVXX.
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