Posts Tagged ‘Money Market Funds’

PAUL VOLCKER: THE MARKET IS “BROKEN”

PAUL VOLCKER: THE MARKET IS “BROKEN”

Courtesy of The Pragmatic Capitalist 

This is a superb summary of Paul Volcker’s must read comments at the Federal Reserve bank of Chicago from today. Highly recommended reading (via the WSJ):

1) Macroprudential regulation — “somehow those words grate on my ears.”

2) Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”

3) Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”

4) Business schools — “We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.

5) Central banks and the Fed — “Central banks became…maybe a little too infatuated with their own skills and authority because they found secrets to price stability…I think its fair to say there was a certain neglect of supervisory responsibilities, certainly not confined to the Federal Reserve, but including the Federal Reserve, I only say that because the Federal Reserve is the most important in my view.”

6) The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”

7) Council of regulators — “Potentially cumbersome.”

8 ) On judgment — “Let me suggest to you that relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market or whether you are deciding what might be disturbing or what might not be disturbing.


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The Money Market Piggybank is Shattered

The Money Market Piggybank is Shattered

Courtesy of Joshua M Brown, The Reformed Broker 

USA Today is out with a mystery that I will help them out with…

They ask the question "Where did the $1.1 trillion that just came out of ultra low-yielding money market funds just go?"

Then they go on to point out that the average bank account’s interest rate is .75% versus the ridiculous .04% that traditional money market funds are paying, so maybe some of the $1.1 trillion went there.

Then we are treated to the usual stats about "how much gosh darn cash has been sucked into bond mutual funds" – $700 billion in the last 18 months says TrimTabs.  The growth of assets in bond funds cannot explain the money market sapping alone, because we all know that a lot of those inflows are coming from stock people that are scared and asset allocators that are hopping aboard the bond bandwagon (bondwagon?).  It’s the disillusioned stock market money that’s pumping into bond funds more than anything else.

The article also posits that investors may be skipping the money market funds and going straight for money market instruments, like buying treasuries directly.  I’m not seeing much of that at the retail level at all.

So where did a trillion dollars just go when it left the universe of over 1600 money market funds?

Easy.  Some of it may have gone to bond funds, but my bet is that an inordinate amount went toward everyday Americans paying their everyday bills.  That’s right, I believe that the investor class is finally starting to pay regular expenses and cover the bills with their money market funds, turning that New Normal maxim about the coming of higher savings rates on its ear.

I don’t have statistical confirmation of this hunch just yet (and I’m actually not sure where to get it), but this is what I’m beginning to see firsthand.  Brokerage and investment accounts are becoming a piggybank for investors who are nowhere near retirement.

They will not be buying-and-holding as the commercials have programmed them to do while their businesses and household balance sheets are on their last legs.  They will put the capital that’s been earmarked for "investment" to much better use than a $40 annual return on $10,000 in a money market fund.

With underemployment still raging and business…
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Federal Reserve Eyes the US Money Market Funds

Federal Reserve Eyes the US Money Market Funds

Courtesy of Jesse’s Café Américain

[baghdadben.JPG] The Fed is holding a significant amount of assets on its books in the form of Treasuries. For example, the Fed has purchased an enormous amount of US Treasury issuance in the past six months as part of its quantitative easing program, aka monetization. It has also taken on tranches of mortgage debt obligations from the banks, purportedly to improve the banks capitalization profile because of the dodgy nature of the assets.

This has added significant short term liquidity to the system, much of it held by the banks for interest at the Federal Reserve itself.

At some point the Fed will wish to reduce the levels of liquidity in the system. One way to do this is by increasing interest rate targets. It can achieve this, for example, by increasing the amount it pays for reserves.

The traditional way for the Fed to drain liquidity is to conduct what is known as a reverse repurchase agreement, or reverse repo.

In a normal repurchase agreement or repo, the Fed purchases assets held by the banks, normally Treasuries, which obviously increases the ‘cash’ being held by the bank. A repurchase agreement is by definition for a specific amount of time. At the end of the period the Fed sells the asset back to the bank. The difference in amounts is the ‘interest’ which changes hands for the transaction.

There is also a type of purchase agreement with no buyback. It is known as a PMO, or Permanent Market Operation. These are used to add liquidity as the name implies, permanently.

A reverse repo is just the opposite. In this case, the Fed sells an asset from its balance sheet to an institution for ‘cash’ and thereby drains or takes cash liquidity out of the system.

Aren’t Treasuries as good as ‘cash?’ Why does it matter whether a bank is holding Treasuries or cash on its books? Apparently not the case, at least for accounting and regulatory purposes. Remember that the next time someone tells you that banks do not need depositors. Sometimes they do.

Typically the Fed has only done this type of operation with a group of about twenty or so financial institutions known as the Primary Dealers.

According to this news piece, the reason the Fed is looking to the…
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ValueWalk

Are Protections Keeping Zombie Businesses Artificially Afloat?

By Luke Fitzpatrick. Originally published at ValueWalk.

Due to financial distress, many businesses have been experiencing, the Government made the decision back in March to relax the rules regarding bankruptcy and insolvency. These relief measures essentially made it much harder for creditors to pursue outstanding business debts, leaving creditors unable to issue bankruptcy notices to any businesses owing debts under $20,000.

Q2 2020 hedge fund letters, conferences and more

Under normal circumstances, each company director...



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Phil's Favorites

Momentum Monday - Rotation Rotation Rotation is The New Location Location Location

 

Momentum Monday – Rotation Rotation Rotation is The New Location Location Location

Courtesy of Howard Lindzon

Happy Monday everyone.

Not much has changed in the last week.

Tech leaders are correcting and the money is flowing into other stocks and markets…not out of the market.

The promise of low interest rates and money printing has most people focused on being in the markets.

As always, to kick off Momentum Monday’s, Ivanhoff and I tour the markets for what we see and like and are thinking. You can watch/listen right h...



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Biotech/COVID-19

SARS-CoV-2 infection can block pain, opening up unexpected new possibilities for research into pain relief medication

 

SARS-CoV-2 infection can block pain, opening up unexpected new possibilities for research into pain relief medication

The spike protein on SARS-CoV-2 interferes with pain perception. SEBASTIAN KAULITZKI/SCIENCE PHOTO LIBRARY/Getty Images

By Rajesh Khanna, University of Arizona

Imagine being infected with a deadly virus that makes you impervious to pain. By the time you realize you are infected, it’s already too late. You have spread it far and wide. Recent findings in my lab suggest that this scenario may be one rea...



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Zero Hedge

2020 Has Been A "Nightmare Year" For America, And The Economic Fallout Is Just Getting Started

Courtesy of Michael Snyder via The Economic Collapse blog

Most of us have never experienced a year that has been as tough as 2020 has been for our nation.  It has just been one major crisis after another, and the month of September has brought us even more trouble.  The worst wildfire season in the history of the state of California has been making headlines day after day, and now the passing of Ruth Bader Ginsburg threatens to escalate the political turmoil in this nation to an entirely new level. 

Many had such high hopes for 2020, but at this point this year has been such a disaster that USA Today is calling...



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Kimble Charting Solutions

Could It Be "Schitts Creek" For Technology Stocks If Selling Starts Here?

Courtesy of Chris Kimble

The Nasdaq has been the unparalleled leader of the stock market in 2020, having rallied furiously off the COVID-19 crash market bottom in March.

But all of the excitement around tech stocks and the comeback in the stock market may be coming to an end… that is, if a key Fibonacci price target has anything to do with it!

In today’s chart, we look at the long-term “monthly” chart of the Nasdaq Composite Index (IXIC) and focus in on the 18-year rally.

As you can see, the Nasdaq peaked in 2000 and bottomed in 2002. Applying Fibona...



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Politics

Can Trump and McConnell get through the 4 steps to seat a Supreme Court justice in just 6 weeks?

 

Can Trump and McConnell get through the 4 steps to seat a Supreme Court justice in just 6 weeks?

A political battle is shaping up over the confirmation of the next Supreme Court Justice. Jose Luis Magana / AFP/Getty Images

By Caren Morrison, Georgia State University

United States Supreme Court Justice Ruth Bader Ginsburg died on Sept. 18, thrusting the acrimonious struggle for control of the Supreme Court into public view.

President Trump and Senate Majority Leader Mitch McConnell have already ...



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Chart School

Stocks are not done yet - Update

Courtesy of Read the Ticker

There are a few times in history when a third party said this US paper (stocks, funds or bonds) is worthless.

Here is two.

1) 1965 Nixon Shock - The French said to US we do not want your paper dollars please pay us in gold. This of course led to the US going off the gold standard.

2) 2007 Bear Stern Fund Collapse - Investors said their funds collateral was worth much less than stated. This of course was the beginning of the great america housing bust of 2008.


In both cases it was stated .."look the Emperor is naked!"... (The Empe...

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Digital Currencies

Cryptocurrencies Rarely Used To Launder Money, Fiat Preferred

Courtesy of ZeroHedge View original post here.

Authored by Shaurya Malwa via Decrypt.io,

Traditional channels continue to dominate the estimated $2 trillion global money laundering racket instead of cryptocurrencies, a report says.

In brief
  • Money laundering via cryptocurrencies is not a preferred tool for criminals, a report said...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

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TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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