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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerThe question comes to mind when looking at the latest data on fund flows and yields. That's because people are piling into money market funds -- as a result of the excess of demand over supply, the yields on short-term money market instruments are tumbling. The average yield on a Treasury retail fund was 0.34% at the end of November, compared with 2.9% in December 2007.
Why is this trouble? With some short-term Treasury Bond yields at negative 0.14%, it will be virtually impossible for money market funds to reinvest the proceeds of their securities and new money -- $550 billion poured into money market funds in November -- at anything much above 0%. This means that money market funds will probably need to decide whether they are willing to lose money to keep their investors from losing theirs.
In other words, given the costs of operating a money market fund, there is no way to give investors a positive yield on the money market investment unless the fund manager is willing to forgo their profit. What to do? Consider looking for Certificates of Deposit that are FDIC insured. Although these require you to put away money for a period of months, they could be a better place to secure some of your funds.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
12-22-2008 @ 3:13PM
BHarrison said...
Well, I hate to say it; but we ALL must face the reality of the situation.
The losses and the frauds always "follow where the 'masses of people' go to", right? I predict that the next disaster is going to be in the mutual fund markets. With no return on any investment in the market, and the growing potential of 'losses" to be incurred in these markets, the ONLY SECURITY is "cold hard cash in hand".
At the outside, I would predict that Obama will wind up declaring a "bank holdiay" sometime during his first six months in office; and the possibility of people being limited to capped amounts in cash withdrawals from their bank accounts at some point in time. If 'worse comes to worse", which it may very likely do, the American people are going to be floored by the reality of it all.
No one believes any of this until it occurs.
12-22-2008 @ 3:21PM
BHarrison said...
Even Crammer in his blog: "Credit likely to remain crunched" stated "How can money not be hoarded?"
The government and the FIs actions in the Bailout plan and actions, simply si not giving us any other options.
. . . and yet the CEOs, CFOs, and other upper managment are still collecting enormous, exorbitantly excessive salaries, bonuses, and "other" compensations. When is this going to end??? When are these INCOMPETENT and/or CORRUPT corporate managment going to be indicted and prosecuted for the FRAUDS that they have orchestrated? . . . and for the recovery of the unwarranted compensations that they have given themselves in all of this???