6 replies to this topic

[Wombat]

Howdy! I rarely post because I'm not as smart as you guys. I love lurking and learning from you, though. Thanks! Do any of you think money markets might have debts in them that could go bad? I'm thinking of switching to a government money market in case some of the AAA stuff (thanks, Moody's!) in my regular money market really is NOT AAA after all. Am I a worry-wart? The bulk of my net worth is with my brokerage account in a money market and I'd only lose 2 basis points if I switched to U.S. Government Reserves. Thanks!

[OEXCHAOS]

I think you've answered your own question. I have a policy of ONLY using US Government Money Market funds. Why? Because I put money in the MM for absolute safety and liquidity. The real money is made when I deploy the assets and the real value I add is in reducing risk. The prospect of coming in one day to find that my clients won't have 100% free access to their money at $1NAV is unacceptable, no matter how remote. The worst part about this is that the risk of something bad happening in a money fund is highest when you are most likely to be in there (i.e. in a nasty market). I say, if you want to take a little risk to get more return, buy some of those closed end bond funds trading at a deep discount, or pick a target maturity zero coupon fund (though this would be better when the Gummints are down). In a credit contraction, when folks have been using leverage and massive derivative plays, there's all kinds of unexpected risk, including counter-party risk that could easily come home to roost at a MM fund that was positioned a bit too heavily in the wrong commercial paper or other debt. To my eye, I'm not getting paid enough to analyze that particular risk for my clients. So, I avoid it. I think you should too. NEVER REACH FOR YIELD. Mark

[Wombat]

Thanks, Mark! That's exactly what I was thinking, but I do tend to worry too much. I about laughed out loud when I called the brokerage firm yesterday to discuss different government money markets with someone, and I was told that all the debt is highly rated! When I reminded this person about Moody's and their ratings being so questionable, she backtracked a little but then asked me if I knew that inflation would ravage my portfolio if I stayed in a money market. Can you believe that non-sequitur?

[OEXCHAOS]

The one good return for a broker is FEES! I don't think you're a worry wart. You want security, you paid for security and now you might not have quite as much security as you thought. Poop on that. Buy quality and take understood risk for significant returns, not poorly understood risk for insignificant relative returns. I wish more people were as concerned as you are. Mark

[Drano]

You'd better grill your broker about exactly what a "U.S. Government fund" is. Several brokers have so-called "government" funds which are loaded to the gills with Fannie and Freddie's paper. If you sacrifice maybe 1/4 of a point, you can get a true government TREASURY fund which has no mortgage-related paper whatsoever.

[Wombat]

You'd better grill your broker about exactly what a "U.S. Government fund" is.

Several brokers have so-called "government" funds which are loaded to the gills with Fannie and Freddie's paper. If you sacrifice maybe 1/4 of a point, you can get a true government TREASURY fund which has no mortgage-related paper whatsoever.

Drano, the holdings information on the different government money market funds was practically non-existent. I was concerned about Freddie and Fannie, too, but the person I spoke to on the phone didn't seem to know much of anything. Anyway, the fact that you mentioned the same concerns I have convinced me to change to the Treasury money market instead of the Government Reserves. It only pays 4.52% but I do hope to be back in stocks when this mess blows over. Thanks very much for your response.

[OEXCHAOS]

Actually, the mortgage stuff in those Govt. MM funds is probably OK (though I defer to experts here), as it's still Govt. backed. Still, if you want to avoid ANY issue, do the US Treasury MM. If it's available to you. Mark