Daily Links Archives: June, 2007

ICI's monthly report on mutual fund assets for May 2007 shows money market mutual fund assets increasing by a robust $65.8 billion in May ($57.6 billion was inflow with the remainder being dividends). Year-to-date 2007 through May 31, ICI's monthly series show money fund assets increasing $140.6 billion to $2.495 trillion. ICI's numbers also show "Liquid Assets of Stock Mutual Funds" at a mere 3.6%, a record low level of liquidity for funds.

While searching Yahoo News for the term "money market" (in quotes), we noticed a new paid advertising link to the new AARP Money Market Fund, which is currently yielding 5.07%. (Crane Data, which also advertises via web search keywords, doesn't list the fund yet because it is too small. We also have yet to receive performance data from the fund.) AARP MMF joins Fidelity Investments, the only other money market fund buying the "money market" keyword, and a number of banks and brokerages, in testing web search ad words on Yahoo.

The Federal Reserve Board of Governors finished its two-day meeting today and issued the following statement (see the Fed's website for the full text): "Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.... [T]he Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." The Fed has left the bellwether Fed funds rate rates unchanged for 7 consecutive meetings (1 year exactly), and is expected to leave rates unchanged for the remainder of 2007.

Dow Jones reports on the Morningstar Conference, which opens today in Chicago. The article discusses the quest for alternative investments and the recent high correlation between stocks and bonds. It says, "Bond funds should continue to deliver sub-money market level returns," according to Jeff Gundlach of TCW. He tells Dow Jones, "So far this year, bonds have underperformed cash. Until the 10-year Treasury can rise into the upper-5% level close to 6%, bonds won't look attractive compared to money markets."

Institutional Money Market Funds Association (IMMFA) Urges Adjustments to UCITS Directive. The body of European mutual fund regulations, UCITS (the Undertaking for Collective Investments in Tranferable Securities), was designed to allow mutual fund investments to be offered throughout a unified Europe. Recent amendment proposals have drawn a response from a money fund trade group. While the letter linked above doesn't deal with European money market fund regulations (which still don't exist), the amendments do touch on some technical points of interest to Dublin and Luxembourg based liquidity fund providers.

The Association for Financial Professionals (AFP), better known as the Treasury Management Association, has acquired the London-based online treasury journal, GTNews.com, according to a press release. "This acquisition recognizes the increasingly global nature of the finance profession," said AFP's President Jim Kaitz. AFP also announced that `U.S. Comptroller General David Walker will speak at the 2007 AFP Annual Conference in Boston this fall.

"Association must protect reserve funds" writes OrlandoSentinel.com. A Q&A asks whether a condo association can invest reserve funds. "Yes, they can be in an interest-bearing account but limited to guaranteed or insured accounts," says the paper. While the response adds that bank accounts or CDs should be used, we would argue that money market mutual funds are perfect for these purposes too.

"Crystal ball stays hazy on bonds safety" Writes the Chicago Tribune's Gail MarksJarvis, saying, "Predicting interest rates is never easy, even for the savviest economists. And it's even more complex now in an era of globalization." She adds that one financial planner says to "move the bond investments into a money market fund, a relatively safe fund that could be yielding about 5 percent now."

Mutual fund research and consulting firm Strategic Insight has renamed its Fund Filing product SimFund Filing. The product provides user-friendly front-end to the SEC's EDGAR database of prospectuses, semiannual reports, and other filings. The product was renamed to align with the popular SimFund database. The new SimFund Filing recently began WebEx training demos and just announced the launch of NewsMakers, a section linking headlines to recent fund filings.

S&P Hosting Free Asset-Backed Commercial Paper Conference July 10. Standard & Poor's will be hosting a complimentary "Asset-Backed Commercial Paper Hot Topic Conference" in New York on Thursday, July 10. In addition to economic, market and regulatory updates, the program includes sessions on sub-prime mortgage exposure in conduits, non-traditional assets in conduits, and analytical consideration for repo conduits. S&P Managed Funds Director Peter Rizzo will also present on "What is driving the demand for ABCP?" along with Citigroup's Jean-Luc Sinninger.

"The Bond Market's Shaky Foundation" on TheStreet.com compares the bond market to an old rickety house and says, "What should you do if you've got money in the bond market? Ever hear of something called 'cash'?" The recent decline in bond prices has reminded investors that they too hold risk and that the 30-year bond bull market must end someday.

Thanks to MutualFundWire.com for pointing out that the recent SEC Roundtable on 12b-1 Fees is available live on the SEC's website, sec.gov. It's anybody's guess as to what might result. The status quo is most likely, but there remains an outside chance of 12b-1 and distribution fees being banned entirely. Stay tuned, and be sure to have your coffee ready.

"US repo sector could face crackdown" says FT.com via Yahoo. Today's story says that the New York Federal Reserve's William Dudley recently told bank and investment compliance officers in New York that "a heavy-handed [regulatory] response can be avoided if banks and investment groups adopt a new set of principles". According to SIFMA's latest research, the average daily volume of the repurchase agreement or repo market was $5.8 trillion in the first quarter of 2007.

"Companies Fall Behind In Cash Management" Says WSJ. "Some of the biggest publicly listed U.S. companies are now carrying a total of as much as $764 billion in excess working capital -- the cash used to finance the day-to-day operations of a business -- because of inefficiencies in the ways they collect on bills from customers, pay suppliers and manage inventory that is manufactured overseas, according to a survey by Hackett-REL," says the brief article.

"Groups oppose stable-value default option" in Investment News. Two organizations, Fund Democracy and the Consumer Federation of America joined the Investment Company Institute in lobbying the Office of Management and Budget to exclude stable value funds and money market funds as default investment options in 401k plans. The American Council of Life Insurers is urging the Department of Labor and OMB to allow stable value funds, which total $396 billion. (Crane Data supports the reinstatement of money market mutual funds as default options in 401k plans.)

PIMCO Total Return Holding 52% in "Cash" Says Bloomberg article. Citing PIMCO's website, a recent Bloomberg article said, "Cash equivalents including debt maturing in less than a year accounted for 52 percent of the assets of the $103 billion fund as of May 31, up from 48 percent in April, the latest data posted on Pimco's Web site show." While we're not sure yet what kinds of "cash equivalents" Gross's fund holds, its approximately $53.5 billion in cash holdings would rank it as the fifth largest money market fund portfolio were it a standalone fund.

"Maximizing CD returns requires paying attention" writes The St. Louis Post-Dispatch. The article describes tactics for profitable certificate of deposit investing, adding "[t]he downside is that you can't access your money without sacrificing some yield."

"Rate Cut Bets Diminish" Writes Bloomberg, saying traders are now betting against any Fed move down this year. "Options on federal funds futures show traders are split on whether the Fed will lift or cut rates by year-end. Traders saw a 36 percent chance the Fed will lift its target to at least 5.5 percent in December as of June 14.... Traders see a 31 percent chance of one or more rate cuts from the Fed by the end of the year," says Bloomberg.

Yesterday, Standard & Poor's announced that Morgan Stanley Funds Plc US Dollar Enhanced Yield Fund was Rated AAf by the NRSRO. The "offshore", "enhanced cash", and non-money fund is "`an open-ended investment company domiciled in Ireland" and portfolio holdings consist of "money market instruments, U.S. treasury and agency securities, agency MBS, ABS, investment-grade corporate debt, and treasury futures to hedge interest rate exposure and duration".

GTNews.com: "Converging Factors Boost US Institutional MMFs". "With corporate coffers awash in cash and companies pursuing greater efficiency in cash management, a perfect storm for US institutional MMFs is emerging that is leading to sustained growth in the industry and greater innovation," says George Hagerman of CacheMatrix on GTNews.com. The European treasury publication, which primarily publishes outside contributors' works, also includes a number of other articles on money funds in Europe. These include: "Liquidity Funds Hit Their Stride" by Kathleen Hughes from JPMorgan Asset Management, "MMF Portals - Becoming a Reality in the European Market" by Kate Baldridge of Institutional Cash Distributors (ICD), and "The Current State and Future Potential of European Offshore MMFs by Justin Rose of Standard Life Investments.

"SEC Proposal Would Boost" Money Market Assets" Says Ignites. The article recaps the proposed B-D responsibility rule changes involving 15c3 and money market funds. "Some industry observers have informally estimated that as much as $100 billion in assets could flow into money market funds as a result of the change," says ignites.com. The proposed rule and comments (due by June 18) may be seen here.

CacheMatrix Upgrades Website and Launches Banner Ad on http://www.cranedata.us. You can't help but notice our new banner ad from online money market trading technology company CacheMatrix. The company is broadening its mandate with a "Software as a Service" campaign. "We continue to experience record growth across our business lines.... This is a breakthrough year for us, as global banks and some of the largest financial institutions have incorporated our technology solutions into their sales and operations divisions," said CacheMatrix Founder and CEO George Hagerman in a press release today.

Saturday WSJ "Shoppers for Mortgages Say Ouch!" Mentions Money Markets. Today's Wall Street Journal article discusses rising long-term rates and features a chart of money market mutual fund and CD rates. The piece says, "While these short-term funds won't get a rate boost from higher long-term rates, investors won't lose money if bond and stock prices keep falling."

First American Funds, which manages almost $50 billion in money funds (all AAA rated), comments on the SEC's proposed "Broker-Dealer Responsibility Rules". The adviser urges the Commission to allow AAA rated money funds as "qualifed securities" under Rule 15c3-3. Currently, the proposed rules only allow Government funds to be used as brokerage collateral, but many are urging the SEC to include "prime" funds.

The American Securitization Forum, the trade organization for asset-backed securities, held its 2007 Annual Meeting Yesterday in New York. While much of the discussion undoubtedly involved new guidelines and sub-prime mortgage lending, the asset-backed commercial paper market is always a large part of the agenda. ABCP currently totals $1.13 trillion, or 53 percent of the $2.11 trillion commercial paper market. (Money market funds hold about one-third of the CP and ABCP markets.)

"Investors Looking for High Yields Should Use Caution" Says BankRate.com with yet another cautionary tale about the promise of above-market yields gone awry. (In this case, which of course wasn't a bank or money fund, a promise of 8.85%.) "Early this year, investors flocked to the three Federal Savings Web sites, drawn by higher yields and the site's similarity to scores of legitimate bank Web sites," says the article, which says early investors have gotten their money back. We'll say it again, "If it's too good to be true (much higher than the Fed funds rate, currently 5.25%), stay away!

LA Times Writes "Hopes Ebbing for Cuts in Interest Rates", adding, "The shift in outlook could be good for savers' money-market funds". It says Merrill Lynch and Goldman Sachs "retracted long-standing predictions that the Federal Reserve would begin cutting its key short-term rate, now 5.25%, in the second half of the year."

BoA's McManus Says Stock Fund Cash Levels at Record Lows. CNN Money's FUNDWATCH writes, "For Fund Managers In Rising Stock Market, Cash Is Trash", quoting Bank of America (BAC) strategist Thomas McManus, "Cash levels are plunging to what might be their lowest levels of all time". Cash levels in stock funds were a razor thin 3.7% in April and a record low 3.6% in March (March was revised down to set the record), according to ICI figures.

Bloomberg Writes, "Fed Faces Pressure to Raise Rates, Options Show", saying options indicate a 41 percent chance of the Fed raising rates from 5.25% to 5.5% by December. The odds of a cut have fallen to 29% says the article, which adds that, according to Fed studies, options have a better record of prediction than futures.

Seattle Times runs Bloomberg's "Dreyfus fund shows good market timing". This article, which profiles the Dreyfus Institutional Cash Advantage Fund and Portfolio Manager Patricia Larkin, previously appeared in Bloomberg Markets and several other publications.

To go along with our "News" piece, today's link is to A.G. Edwards Bank Deposit Rates Page, which lists the rates paid on various cash balances. (A.G. Edwards recently switched from a money fund to banks for its "sweeps".) We were unable to locate Wachovia Securities' rates, but believe them to be the lowest among all brokerages.

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