In an interesting story posted by Tyler Durden over at Zero Hedge, we learn that the Obama administration is proposing a rule change to money market funds, essentially saying that Your Legal Right To Redeem Your Money Market Account Has Been Denied in the event that extraordinary circumstances in the economy and/or financial markets arise. Though it is not official, chances are it will be soon, probably right before everything collapses again so that those individuals and businesses with their money tied up in money markets will not have the ability to withdraw funds.
“…the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.
Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to “suspend redemptions to allow for the orderly liquidation of fund assets.” You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA’s latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was “absolutely” safe money, a back office person will get back to you saying, “Sorry – your money is now frozen. Bank runs have become illegal.” This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous “extraordinary circumstances” arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well – sorry, you are out of luck. It’s the law. “
Is it just me, or does it seem like our money is no longer safe anywhere?
Stocks? Nope. The market is overvalued, clearly, so buying now is probably not a great idea. Companies are selling for 50 or 100 or 150 times their earnings, stay away.
Bonds? Nope. If you buy bonds now, even 30 year treasuries, the 4.5% you ear will be nothing compared to the 10%, 20%, 90% (?) you lose as the dollar is destroyed.
Money Markets? Nope.
Banks? Nope. Sure, they have the FDIC logo, but what happens in a massive bank run? You’ll be locked out of your account for days, weeks, perhaps months, and because the FDIC is broke, you’ll either get paid a fraction of your money or be paid in devalued dollars. Perhaps you can avoid a bank run if you have an account with a safe bank in your local community.
Cash? Nope. The Fed is printing like crazy, expect the purchasing power of your dollar to be destroyed.
Foreign Cash? Nope. They’re printing like crazy too, so all paper currencies are going to be losing buying power over the long term.
Real Estate? Nope. Good luck if you take this route. Another wave of the mortgage meltdown is imminent, and real estate prices are going to get hammered even more.
Precious metals? We think yes. Unless, of course, the govt decides to tax your profits at 99%. Then, not so much.
Food? Guns? Ammo? Prepping Supplies? We might be crazy, but this is starting to sound like a good investment with each passing day.
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