"... investment banks and securities firms are stuck with LBO deals theyve already entered into but cannot find buyers for the bonds so must inventory them themselves."
As we've been discussing, this ties up all the capital of the investment banks.
The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc... They view their money as safe and detached from everything that is going on right now in the credit market and stock market. They don't understand those markets and that is why they bought the "safe" money market fund or GIC in the first place. For one of those funds to lose 24%, that would send those investors fears over the moon. One way to shake up the public is to get Mom and Dad on the backs of their kids to answer what the hell is going on. We're there now or damn close and that is when this goes to a sigma 99999999 affair.
CR , isn't the issue with money market funds more of a commercial paper issues rather than a pier loan issue ? I don' think Sentinel had anything to do with extending bridge / pier loans. The bridge loans , which have turned into pier loans , are toxic because they tie up the big banks capital. On top of that , these pier loans are losing money due to the diminishing value of said loans , coupled with rising interest rates. IMHO
I checked my MM, and it has substantial holdings in short term bonds of the 'Federal Home Loan Bank' which is some federal institution I've never heard of before. Does this institution have exposure possibly?
Well if I could actually contribute one meeningful item to this website, i hope it was this, this shows no containment....
liitle game pick the 7 seals and name the 4 horses
4 horses of the appocolypse
1- NAR pessimism
2- hedge funds insolvent
3- money markets halt redemptions
4- ?
fredw, Sentinel is impacted indirectly by the pier loans, as they note in their letter that these pier loans are part of the liquidity crisis:
... investment banks and securities firms are stuck with LBO deals theyve already entered into but cannot find buyers for the bonds so must inventory them themselves. This liquidity crisis has caused bids to disappear from the market and makes it virtually impossible to properly price securities or to trade them.
anyone who can help with my question about FirstFed buyback (where do they have the money for buying 25% of themselfs) I would thank you for your help.
PS Banker: I don't really speak pashto - that was a joke few days ago....
hkp---I was wondering the same thing since I was under the impression that every money market fund had to be registered with the SEC. Guess not. As lax as the SEC has become recently with regards to money market fund investments, if history is any guide, the CFTC is even more lax.
Good Lord, Stuart, when did everybody over 50 with a money market account become a fuddy duddy?
Sorry, I've been too busy as Baby Boomer From Hell Taking Too Much Risk And Ruining Things For The Young Ones to notice I'd gotten old and risk-averse.
Unti quite recently, I always kept 6 months X my monthly budget in a tax-exempt money market fund. (I didn't get scared of money markets, I had the "rainy day.") There was this thing we used to call "liquidity" that I wanted for my emergency reserves.
Maybe the rest of you "invest" in the money market. I pity folks who were just parked there.
With the Fed we don't have to worry about runs on banks. Now if we can just figure out some way to avoid the "run on Sentinel" and other MMFs and hedgies. And another thing. Perhaps it is the case that "Investor fear has overtaken reason". Or perhaps investors are slowly coming out of an easy money stupor and noticing that the emperor has no clothes.
Who imagined that completely unregulated investing bodies combined with a ludicrous flood of available credit could ever have harmful effects on the rest of the economy.
I wonder how much 401k fear mongering it will take for the Fed to lower rates.
The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc...
I always go to t-bills when I run for cover. I was telling that to some guy at work who said he kept his savings in a money market account because that was safer.
idoc, why buy a fund of t-bills, and pay for the service when you can buy at auction yourself? it's Soooooo EASY
don't over analyze it...
and don't be a yield whore when 200 bps up or down, is'nt going to change your life
that's precisely why MM's funds have been so succesful at raising cash...
the sales tactic of +25-75bps
There's more of this CP/money market illiquidity going around (source bloomberg):
Coventree Inc., the Canadian firm that failed to sell asset-backed commercial paper because of a credit crunch, said some lenders balked at providing emergency funding for C$700 million ($661 million) of maturing debt.
Coventree requested funding from lenders because it was unable to refinance debt that matured yesterday after investors declined to buy new securities. Coventree's funds are among 17 asset-backed commercial paper issuers in Canada seeking emergency funding, said rating company DBRS.
...
Separately, Global Diversified Investment Grade Income Trust said in a statement today that one of its funds, MMAI-I Trust, failed to roll over its commercial paper that matured yesterday, and that Deutsche Bank AG declined to provide emergency funding.
"
There was some discussion here on ABCP recently, can someone refresh the issues (size, severity)?
I have a money market ACCOUNT with a credit union(Baxter Credit Union) and I've called them - since I couldn't find any disclosures on the website or in the statements - and they assure me that I won't lose money in that account.
There may be a terminology issue that people should be aware of - before just getting money out. Seems like MM account, in this case, is different from MM (fund?)?
I moved most of my savings to money market about 1 year ago. I'm doing this not so much because I'm risk averse as because I see a downturn coming. I'll reinvest in stocks when prices come down.
The downturn has apparently been delayed by the most incredibly stupid lending practices in the last couple years, so the downturn will be that much worse...
There's something about this that doesn't ring quite right. As two commenters above stated, what does the CFTC have to do with a money market fund? Secondly, money market funds don't generally have to worry about redemptions cuz they have enough liquid stuff (and I'm talking bills, discount notes, etc.) laying around that are money good. Thirdly, the whole "pier loans/balance sheet constraints" talk strikes me as a smokescreen. IB's and banks are still bidding stuff, except maybe ABCP.
In summation, the fund they're talking about here doesn't seem like your run-of-the-mill money fund.
"The CFTC has no authority in this area," the CFTC official, who asked not to be identified, told Reuters. "This isn't something we do.
"We have no role in whether or not the company does this and whether the client accepts it," the official said.
If your money is at a Bank or Brokerage and it is FDIC insured you have no problem. If it is not FDIC insured you could have an issue IF it was invested in MBS.
If you are worried simply ask if your money market is FDIC insured and If not see if you can switch to one that is.
Is it not the case that it's not the value of the cash flows for whatever this fundis invested in, but the illiquidity of the market in which it trades?
The problem here seems to be the market, not the security.
Journeyman said: "With the Fed we don't have to worry about runs on banks. Now if we can just figure out some way to avoid the "run on Sentinel" and other MMFs and hedgies..."
Oh, you don't know the half of it.
How many people know that even "ordinary" mutual funds have redemption limits that can be imposed at their (the funds') discretion?
If you guys are going to insist on panic, do it up right.
"The problem here seems to be the market, not the security." Reminds me of RE agent talk. When the price is going up it's "the market". When the price is going down it's the asset.
Sure the DISCOUNTED future stream of income from an asset is one way of valuing assets. Perhaps our collective opinions about the future have shifted.
When I first started my brokerage account, I remember they had some boilerplate info about, "Let us stick all of your deposited cash in this thing called a money market fund".
I checked the box that said, "No, please stuff my cash in a regular account"
Money market funds may seem cool, and well, all the kids are doing it.. and you can get a higher percentage return than just having your cash parked in Tbills.. but the risk is there. Just because nothing too drastic or volatile has happened to MMFs in the past, does not mean it can't happen in the future.
The lack of volatility in MMFs is the exact reason why one should stay away. However small the odds, something nasty can happen to them.
What are you going to do if you want to shift your cash to take advantage of a great deal you see in the markets, and some doofus on the phone says that it's best if everyone just leave there money in the MMF for now.
Fleckenstein went over this awhile back, no asset class is safe. Neither gold nor anything that you have to sell for cash. So, really, in that case you shouldn't even keep your cash in Tbills if you are planning on using it to speculate or invest since, by the time you are able to get ahold of the cash, the deals will be gone.
Though, to be fair, if it's just a long term store for money, I guess it'd be okay to use a MMF if you didn't care about it being frozen for an indefinite period.
Good questions, gab. I know nothing about Sentinel. My MMF's with Vanguard and it's all the shortest of the short paper. GSE MBS repos and T-bills and Okefenokee County Municipal Bond swaps. I suppose there are "medium term" MMFs out there?
On the Bankerdome scale where 1 is normal markets, 1990 was a 2.5, 1998 was a four and 1929 was a 9? This is around a 4.5.
What has changed over the past few weeks is the potential now for a real calamity in the markets. But where we are at the moment? Best described as a temporary and severe disruption.
Yal,
I have been wondering about you and Pashto for days now, thinking...nah...but maybe he does. Thanks for clearing that up!
Sentinel's self description from happier days:
(quote)
Sentinel is prudent in its placement of funds, in order to provide a minimum of risk while maintaining maximum liquidity. All client funds are placed in readily marketable government and corporate securities, a large portion of which are in overnight investments, allowing us to meet client withdrawal needs while maintaining the integrity of our portfolios. Sentinel is Client Focused-- we adhere to strict criteria in determining the clients with whom we will work. We choose clients whose businesses we understand, thereby enabling us to provide the flexibility, innovation and responsiveness that develops into long-lasting, client-sensitive relationships. This focus enables us to customize portfolios that will meet our clients' investment
(end quote)
The money qoute, repeated for all of the attornys out there;
"...minimum of risk while maintaining maximum liquidity....a large portion of which are in overnight investments, allowing us to meet client withdrawal needs..."
(Maybe the Fed should think about their overnight operations.)
Sentinel strikes me as an odd duck, very low profile for the size.
-Levered edge funds are sitting on "unmarked" losses on credit securities. Their equity is already wiped out. If they sell, they mark them down and then face liquidation. If they don't, the prime broker (lending bank) carries the risk of further decline. Needless to say, they don't sell.
-The prime brokers realize they have all risk and no reward. They mark down the securities, make margin calls, seize the collateral and try to dump it.
-Talk of margin calls spreads on the Street. There is no liquidity for prime brokers to exit.
-Prime brokers have trouble rolling CP.
-Prime brokers fall victim to their own "marks" and report outsize losses.
-Prime broker financing dries up, and some firms are forced to liquidate.
-The liquidations reverberate through the markets, yielding concerns about the stability of lenders to the prime brokers (money center banks).
That's how the story should play out. Where are we in the process? What can the Fed do about it?
"If you are worried simply ask if your money market is FDIC insured and If not see if you can switch to one that is.
Quit freaking out everyone."
Fair enough, but is a situation possible where they say "We're stopping withdrawls temporarily - just as soon as the FDIC funds start flowing next quarter you'll be able to withdraw portions of your money in an orderly fashion"?
Banker talked about having a cash fund at home, and I've started wondering if that might be prudent for me as well.
I hope you are correct and tghe hung bridges are the lynchpin here. Because if that is true, there is reason for hope. Corporate HY defaults are still very low so investors are getting coupons every day which increase their cash position. At some point those positions are so large they simply have to begin buying and if one of those LBO's gets done in the market, then confidence is going to come roaring back and we're back to December 1998 wondering what all the fuss was about.
We'll see. Somehow it doesn't seem likley it'll be quite that simple.
Also, here's the pertinent small print from the optionsXpress page on their MMFs:
3 Money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC) nor are they guaranteed by the U.S. government. Although funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a fund. An investor should consider the investment objectives, risks, and charges and expenses of a fund carefully before investing. A copy of the prospectus may be downloaded by clicking on the above link. Read the prospectus carefully before investing.
The small print may come in handy in the next few months.
Also, this incident really illustrates the limitations of the Fed - while they can maintain liquidity in terms of overnight rates, etc. they can't force people to buy stuff they don't want to buy.
Now if the Fed starts buying things outright, that changes everything. Again, I don't know if this is possible, but the Fed purchasing assets at inflated prices is money printing in its purest form.
It's just something to watch out for.
Right now I think the dollar is an OK place to be, but I keep my eyes wide open for any signs of systematic devaluation, and I think you should too.
A cash hoarde won't do you much good without tuna fish, weapons and ammunition...and AA and D batteries...lots of'em...and a short wave...and the Harvard Library of Classics...and water, lots of water...
Banker- A cash hoarde won't do you much good without tuna fish, weapons and ammunition...and AA and D batteries...lots of'em...and a short wave...and the Harvard Library of Classics...and water, lots of water...
Sorry! Wrong! Gold is the only real money. It has lasted over 5000 years.
ack.. add Gold to the Religion and Politics list.
Seriously, Gold may be useful if you believe strongly in hyperinflation, and you think gold will benefit, and you just intend to hold it long term.
It is no use to you if you want to be able to convert it to cash at any given moment. What if no one has any cash to buy from you at the moment you need cash the most?
I am not sure that MM are FDIC I think they are privately insured or insured through a different federal program than FDIC. I think they can lose their principle if the short term loans they make are not repaid. They could be tied up for a while by redemptions or insurance. Of course that is when you would really want access to the money. My MM was making a lot of loans to people like BS, CITI, and WaMu.
Please correct me if I am looking at this wrong, since I am a novice.
I am not sure that MM are FDIC I think they are privately insured or insured through a different federal program than FDIC.
w,
Scroll up to my post on the optionsXpress MMF. Their small print states explicitly that the MMF is not insured by the FDIC nor is it guaranteed by the federal government.
In fact, the MMF can lose money, but they try very, very hard to maintain a $1 per share value if that makes a difference.
This "there is no bid" stuff should be exposed for the obfuscation that it is - there IS a bid - Heck I'll bid - its just that they won't entertain the bid, viz.. the spread between bid and ask is really wide ( understatement alert ). So, tough titties. Deal with it.
But of course in a world full of longs - this is all to be expected - the whining acts as qualititative support vectors in the SVM modeling framework.
Eli "What if no one has any cash to buy from you at the moment you need cash the most"?
LOL. I forgot to add. What US citizen has cash anyway? The US has a negative savings rate.
As long as they can use their CC's everything will be fine. LOL!
Tanta-my MMF at Vanguard is the Admirals Treasury and is described as "At least 80% of the Funds assets will always be invested in U.S.
Treasury securities. The remainder of the Funds assets may include securities
issued by U.S. governmental agencies such as the GNMA, the Small Business
Administration, and the Federal Financing Bank." What do you think?
My guess is the CFTC is involved because Sentinel runs money market funds for commodities futures traders, who have to hold "cash or equivalent" to cover their positions.
Like I said, if one wants a long term store of value.. then gold would be fine if that's what suited one's tastes.
But, if you plan to convert it to cash (at some unknown time) so you can trade that cash for something else (say you got a margin call or you want to buy some "undervalued" asset), then it's not such a good help owning actual gold or being long gold futures.
That's all I mean. People can have plenty of cash, but that doesn't mean they will want to spend it.
When people are afraid to buy, some consider that a good time to buy.
Re the Sentinel mess... a commenter on DealBreaker:
When your money manager doesn't even know under which regulator realms it falls, thats probably a good reason to withdraw your money (or to not invest in the 1st place, but i digress)
Take the example of Argentina. Bank deposits were frozen and some people literally had no access to cash. They had to sell off whatever they could to raise money. Talk about deflation: the story goes that a dealer from NY came down and bought 20 used Steinways in week (at fire-sale prices).
In that situation, its good to have cash, sure. Except peso's were worth a third of what they used to be, so that wasn't good deal.
If you had gold coins, you could sell them. Gold was money. Not stop-by-the-ATM money, but still fairly liquid.
The analogy holds if you think the dollar needs to fall. Otherwise dollars in your mattress will work just as well.
Slo+wmotion, I'm a bit confused. You're saying that MM funds will be in trouble if they're invested in MBS, but aren't the current MM woes related to problems in the commercial paper market?
I thought "commercial paper" was just a very short term loan between companies and didn't have anything to do with MBS?
"Sentinel Management Group Inc has asked the Commodity Futures Trading Commission for permission to suspend redemption has potentially huge implications.
Sentinel operates in the niche business of holding the excess cashover normal margin requirementsfor futures market participants, including hedge funds, futures brokers, commodity trading advisors, and similar entities. The inability of Sentinels customers to access their cash balances could have, at best, interesting implications if those traders cannot meet margin calls.
While Sentinel is barely a pimple on the wider money-market world, and in the overall scheme of things insignificant in the futures markets, it operates in a specialized niche where the consequences of its failure may spread out of all proportion to its size."
eli, thanks. I found the same statement "but they try very, very hard to maintain a $1 per share value". That is Classic. I actually pulled my MM last week. However, I could swear that when I asked the account rep when I set it up originally he went on about how they had private insurance for their MM so it was essentially risk free.
Does anyone know about private insurance between banks that covers accounts not covered by FDIC?
My guess is that Sentinel was at least a partial investor in short term Commercial Paper. As I understand it "Asset Backed" commercial paper is about half of this trillion dollar market place. This market looks like it has been and is freezing up.
As part of the structure of ASCP there are Bank "Liquidity Providers" whose job it is to pay off the first weeks commercial paper in the event that the second weeks commercial paper can't be sold in the marketplace.
Any how these banks are refusing to live up to their obligation to pay-off week 1 commercail paper.
If it gets so bad that gold is a viable option, you'd be better off owning large carat diamonds(in the past I would have just said gems, but now they can artifically color rubies and whatnot.)
I'm waiting on Merril Lynch to hear what kind of stuff they had in their treasury MMF.
LOL... gold. You know its crazy when the gold bugs emerge. Obviously we have a major hatch going on today.
I just called my broker about the MM thing - we've known each other for about 20 years, not just a business relationship. He said not all MM funds are the same - turns out the one I keep my slosh in is all short treasuries & agency... no CP, no CDO, no private label MBS... he added 'Couldn't you tell from the shitty return you are getting?'... So before you panic - check your prospectus.
I asked him to ask around - see if there really is the beginning of a panic or is this just more hype. He usually gets 'panic-o-grams' from corporate when something like this happens... say market drops 300 points or so. He shares some of them with me & we chuckle - having been through '87, '98... etc. Nothing unusual so far today.
gng, I believe that many of the short term commercial loans are made to companies at the heart of the MBS debacle. Therefore it calls in to question their ability to repay them if they are in a liquidity crisis.
"How does one mark to market securities in a clearly financially healthy company when there is no bid?"
For healthy companies I guarantee there is a bid. It's just a bid that somebody doesn't like! As for the securities with no bid... it's because they are very likely worthless or nearly so. The marketplace is filled with children who don't want to face reality. Let's be serious though... GE debt has A bid. Even GS/C/MER etc... have A bid. Enough with this "no bid" nonesense, because if there is no bid it's because you're holding CDO-type crap.
As for gold discussions... there are a million gold bug blogs... I sincerely hope this doesn't turn into one.
Some comments here that may lend some insight as to why this may have been a 1-off (vs a canary close to the entrance to the coal mine). Seems some of their clients may well have been reaching for that phantom positive alpha in the higher yield space.
The firm is open only to corporations, institutions and accredited investors. Accredited investors must have a financial net worth of at least $1 million or income in excess of $200,000 annually for the past two years. If you think about it, income in excess of $200,000 as a couple is not a particularly high bar.
Now, Sentinel's FAQs say the company normally invests client cash mostly in the overnight market, also called the Federal Funds Market, or Fed Funds Market. In this market, depository institutions borrow and lend the balances, or reserves, that they hold in accounts at the Federal Reserve. Remember last week when the Federal Reserve conducted those open market operations to provide liquidity. They did so in this market.
But back to Sentinel. While the firm says clients can withdraw 100% of its daily cash (using a cutoff time of 4 p.m.), not all clients want daily liquidity. And here is where we begin to see how there could be problems. In the firms' Frequently Asked Questions, Sentinel notes, "Clients who do not need daily liquidity for the entire amount of their investment can authorize Sentinel to invest for longer periods. This gives Sentinel the flexibility to seek slightly higher yields when the short-term yield curve is more steeply sloped."
Importantly, Sentinel says the firm buys "only the highest quality and most liquid securities (unless specifically directed by a client to seek higher yield in somewhat lower quality issues.)" Ah, there we go. If Sentinel was managing cash positions for clients who were not in need of daily liquidity, then those clients perhaps directed the firm to invest in somewhat "lower' quality" issues in order to boost their yields. And as we now know, demand for those higher-yielding securities has dried up. Consequently, the firm is unable to trade, or even price, many of those securities.
Commercial paper used to be always backed with bank lines. If the borrower couldn't pay, then the owner of the paper could get paid out by the bank. The borrowers paid substantial fees (stand-by fees) to the bank for this service. But now there is "asset-backed" commercial paper (ABCP) instead. And guess what the "assets" are?
Horizon Cash Management LLC, a rival of Sentinel Management Group Inc., has not received an unusual amount of redemption requests from clients and is not halting redemptions, Horizon Founder Diane Mix said on Tuesday. "It's business as usual," Mix said in an interview. "We're not halting redemptions because our portfolios are very short duration and we have enough liquidity." Sentinel told clients earlier this week that its moving to halt redemptions to avoid having to sell securities at deep discounts.
As per Naked Shorts's column of today , the implications concerning Sentinel could be huge and it also explains why the CFTC was contacted concerning the attempt to halt redemptions. As per Naked shorts , "Sentinel operates in the niche business of holding excess cash- over normal margin requirements -for futures market participants ( including hedge funds , futures brokers , commodity traders , etc. ) The inability of Sentinel's customers to access their cash balances could have , at best , interesting implications if those traders cannot meet margin calls." Based on the niche they are in , this could be a big deal ( if they are allowed to freeze customer accounts ) for the riskloves out there.
the current "correction" hasn't been much of one. We appear to have gotten extremely soft in the last five years.
Clearly , because he large portion of sublsime holder's are trying to hold off reality...
the BSC situation took from Feb's request for redemtion til june, before we found that there's no book!
Reality avoidance continues...
But that chinese water torture drip on the forehead is working it's slow methodical magic
Thanks Lawyer L, libertas, and w. I didn't know that commercial paper could be "asset backed".
"Asset backed commercial paper": One company promising to pay another company, and if they don't they have to give up another companies obligation to pay out part of the payments that a group of homeowners promised to pay.
Lovely. Screw gold, I want to go back to using shells as currency.
Attention Posters or Readers with no financial background,
What Dryfly said up post is spot on.
You can also go to morningstar.com find your mm fund and then click
"top holdings" icon on side of screen.
Remember alot of the posters on the web and in web blogs are fear mongers.
Dont let them scare you!
Usually a good barometer is if the name says "Enhanced" or "Enhanced yield money fund" or higher yield money fund there is a possibility that it holds MBS(non gov, non agency).
Money Funds that say "Money Market" are probably OK. If it says FDIC insured it's OK.
I've been wondering about FirstFed's stock buy too, but figuring out the balance sheet of a bank is way beyond me. It is, at best, pretty unwise to be spending cash on this during a liquidity crunch, especially if you're one of the poster children of unwise lending (I think 90%+ of the loans in their portfolio are low-doc/no-doc, option ARMs.)
I think both FED and DSL have the potential for very dramatic drops, similar to what happened at LEND last spring. I'm not predicting failure, but I don't think if it would surprise anyone if they fell 50-75%.
Hey.. this story has legs.. watching CNBC, they are saying that:
"CFTC says they have no authority to allow or refuse redemptions:"
"CFTC says they haven't been asked by Sentinel about this"
Fascinating.. I tell ya - the things people do in the service of Mammon. Sick.
All I can say is that as of now I've cancelled all my money market sweeps (of any size) and I'll be using T-bills until calm resumes. It is a little more work, but I have the time.
From my long and exhaustive research (2 min. on a Bankrate article yesterday) bank money market ACCOUNTS are just another savings account insured by FDIC. MMFs are investments and not FDIC insured.
If I'm wrong, correct me.
Also, re gold: "But, if you plan to convert it to cash (at some unknown time) so you can trade that cash for something else (say you got a margin call or you want to buy some "undervalued" asset), then it's not such a good help owning actual gold or being long gold futures."
What about Pippi Longstocking? Perhaps gold hoarders could be classified under the Pippi Longstocking Effect.
FYI: If you buy any appreciable amount of precious metals you'll need to keep them stored in the seller's vault and pay for that. Doing so means there's no question but that the metals are legit and thus won't need to be re-assayed.
Your local coin shop won't be able to buy much more than a few ounces at a time. Only a major dealer can instantly buy back your, say, 100-1000 ounces of gold without hesitation, assuming you stored them in their vaults.
"anybody here see any problems with moving my money to a money mkt that invests only in US Treasuries?"
Hell, no. I've been trying to do it for over a year but of course my 401K administrators don't know Treasuries from CDOs from their asses and couldn't care less. The only good news is that my MMF (Fidelity's FMPXX) dumped all their Fannie Mae paper back in 2004 and now sticks to CDs, medium-term notes, and repos. They may still have indirect exposure though.
"When will the containment move to cash accounts at banks? 'Sorry, the bank is not allowing withdrawals'"
My bank, rated the strongest in the nation (Washington Federal) limits you to $1000/day cash withdrawals.
I have about $40K in IRAs there and yesterday I asked if I could get it out in cash in the event of a panic. I got a good laugh and a lecture for scare-mongering.
Nemo > My guess is CFTC is involved because Sentinel runs mmf for commodities traders.
Nemo, not a guess anymore. According to Minyanville at Marketwatch 1259PM, disclosed indeed it was fat cats with a net worth of $1 mil or $200,000? income trading in commodities, and the odd markets normal home traders stay away from. Anyway, the Sentinel sure spooked me too, but i'm now more relaxed. Neal was right in his calling. This is an odd duck. Sorry, i don't know how to transfer the story to CR.
This looks ugly. I've got 3 months supply food and water in the house. I've kept that up since Sept. 11. What would be useful to add, $5,000 in cash or 5,000 rounds of ammunition? I'm guessing a 30 caliber round could become the new dollar bill if things get bad enough. (I'll trade you 5 rounds for that potato.)
Well, you might as well use them as on-going consuption while you replenish them for your doomsday. Remember perishible items have a shelf life. So use FIFO. Thats FIRST IN-FIRST OUT. As these interesting times go by, you can adjust to increase or decrease your items as you see fit, like BB. lol.
Not so much Doomsday. I was living in Washington, D.C. on 9-11 and given the tenor of those times radioactive fallout was my worry. And having to dig a cave under the slab of my townhouse and staying put for 28 days while radiation levels diminished to something survivable seemed a real possibility. I since have moved hundreds of miles away. (And made $250K profit on that townhouse, BTW. Stupid bubble.)
I now keep food on hand because I've been laid-off 7 times in 15 years and not having to buy food for a few months really helps cut back on expenses
OK lets use a simple example so that we all understands. Lets say I have 100K in Fidelity Cash Reserves (aprox 100 bil fund, 27% invested in ABCP). I get freaked out because I have read about Sentinals "Cash Management" problems...I pick up the phone and buy 100K in Tbills.
Now...lets just say there is a real "run" on FCR and 40 billion wants redemption. There is no bid on ABCP, so what does the PM at FCR do? He sells the good stuff...bills, GSE repos, go down the list.
You now have a fund that has 50% ABCP with no bid...
Conservatively, 80% of the ABCP that is out there (500 bil) is held by money market funds.
BTW , Reuters mentioned in a story covering the Sentinel mess that by refusing to release their clients funds upon request , Sentinel is probably violating federal commodity laws ! An official from the CFTC said that an enforcement action probably wouldn't be launched against Sentinel because it would probably just make things worse ! Seems like the preferred path is a quiet cleanup of the mess with the hope that a big player will step in and assume Sentinel's accounts.... Nothing to see here folks , just move along !
The Sentinel Management web page is down - not that there was much to see. Here is Google's cached version:
http://64.233.167.104/search?q=cache:2v1153ubRiYJ:www.sentgroup.com/+Sentinel+Management+Group&hl=en&gl=us&strip=1
Very informative.
WOW!
No worries, this is now contained to subprime, prime, alt-a, private equity, hedge funds, money market accts, ....Nevermind!
Ganhas, I think the key is all these pier loans:
"... investment banks and securities firms are stuck with LBO deals theyve already entered into but cannot find buyers for the bonds so must inventory them themselves."
As we've been discussing, this ties up all the capital of the investment banks.
Best to all.
ahhh, the RACE for CASH
Kinda like the NYC marathon starting out over the Verrazano bridge...
Staggered start works best...
But nobody, as far as I know, organizsed this race...
So , it's first come, first served...
Now make the payment's Sentinel
its a MM...
Oh to be Warren Buffett right now.
So, on the bankerdome scale, just how bad is this?
It sounds pretty bad to me but I don't have any real financial expertise. I'm just here for the schadenfreude.
The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc... They view their money as safe and detached from everything that is going on right now in the credit market and stock market. They don't understand those markets and that is why they bought the "safe" money market fund or GIC in the first place. For one of those funds to lose 24%, that would send those investors fears over the moon. One way to shake up the public is to get Mom and Dad on the backs of their kids to answer what the hell is going on. We're there now or damn close and that is when this goes to a sigma 99999999 affair.
Cash is Cling!
CR , isn't the issue with money market funds more of a commercial paper issues rather than a pier loan issue ? I don' think Sentinel had anything to do with extending bridge / pier loans. The bridge loans , which have turned into pier loans , are toxic because they tie up the big banks capital. On top of that , these pier loans are losing money due to the diminishing value of said loans , coupled with rising interest rates. IMHO
I checked my MM, and it has substantial holdings in short term bonds of the 'Federal Home Loan Bank' which is some federal institution I've never heard of before. Does this institution have exposure possibly?
Is it 1929 yet?
"High grade securities are trading like junk bonds as panicked investors dump names like General Electric at Tyco‐like prices"
But Tyco trading like GE was ok? No need to intervention the market.
Well if I could actually contribute one meeningful item to this website, i hope it was this, this shows no containment....
liitle game pick the 7 seals and name the 4 horses
4 horses of the appocolypse
1- NAR pessimism
2- hedge funds insolvent
3- money markets halt redemptions
4- ?
make that 'intervene'
fredw, Sentinel is impacted indirectly by the pier loans, as they note in their letter that these pier loans are part of the liquidity crisis:
... investment banks and securities firms are stuck with LBO deals theyve already entered into but cannot find buyers for the bonds so must inventory them themselves. This liquidity crisis has caused bids to disappear from the market and makes it virtually impossible to properly price securities or to trade them.
Best Wishes.
Why in the hell would a money market fund have to report to the CFTC? (commoditties futures trading commission)
Good News!
The CFTC claims that the problem is contained!
anyone who can help with my question about FirstFed buyback (where do they have the money for buying 25% of themselfs) I would thank you for your help.
PS Banker: I don't really speak pashto - that was a joke few days ago....
CR , if LBO pier loans are causing money markets to halt redemptions , than we are in a world of hurt.
anybody here see any problems with moving my money to a money mkt that invests only in US Treasuries?
This exact type of fund is labeled as a "Cash Fund" in my online 401(k) plan website. I guess it didn't contain cash after all.
hkp---I was wondering the same thing since I was under the impression that every money market fund had to be registered with the SEC. Guess not. As lax as the SEC has become recently with regards to money market fund investments, if history is any guide, the CFTC is even more lax.
1- NAR pessimism
2- hedge funds insolvent
3- money markets halt redemptions
4- ?
Lance McDude | 08.14.07 - 12:01 pm | #
Well, it should really be a 5 point thingy:
1- NAR pessimism
2- hedge funds insolvent
3- money markets halt redemptions
4- ?
5- Profit!!
That's my nod to Slashdot.
Would a bank's MM be under the same pressure?
Idoc,
I moved all my cash to t-bills or short term treasury only funds a while ago.
BTW....why is CFTC involved in a MM fund?
geez, i can't believe i'm even having to ask that question about Treasuries! what the heck is becoming of the world?
When will the containment move to cash accounts at banks? 'Sorry, the bank is not allowing withdrawals
Good Lord, Stuart, when did everybody over 50 with a money market account become a fuddy duddy?
Sorry, I've been too busy as Baby Boomer From Hell Taking Too Much Risk And Ruining Things For The Young Ones to notice I'd gotten old and risk-averse.
Unti quite recently, I always kept 6 months X my monthly budget in a tax-exempt money market fund. (I didn't get scared of money markets, I had the "rainy day.") There was this thing we used to call "liquidity" that I wanted for my emergency reserves.
Maybe the rest of you "invest" in the money market. I pity folks who were just parked there.
With the Fed we don't have to worry about runs on banks. Now if we can just figure out some way to avoid the "run on Sentinel" and other MMFs and hedgies. And another thing. Perhaps it is the case that "Investor fear has overtaken reason". Or perhaps investors are slowly coming out of an easy money stupor and noticing that the emperor has no clothes.
Who imagined that completely unregulated investing bodies combined with a ludicrous flood of available credit could ever have harmful effects on the rest of the economy.
I wonder how much 401k fear mongering it will take for the Fed to lower rates.
The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc...
I always go to t-bills when I run for cover. I was telling that to some guy at work who said he kept his savings in a money market account because that was safer.
Hmmmm....
New definition for safe investment; mattress
Now if we can just figure out some way to avoid the "run on Sentinel" and other MMFs and hedgies
Journeyman,
they stopped the redemptions...redemptions was the run. Now they are asking for permission to pull the curtain and hang the "next teller please" sig
idoc, why buy a fund of t-bills, and pay for the service when you can buy at auction yourself? it's Soooooo EASY
don't over analyze it...
and don't be a yield whore when 200 bps up or down, is'nt going to change your life
that's precisely why MM's funds have been so succesful at raising cash...
the sales tactic of +25-75bps
Risk averse. My boss back in the day, always used to say "risk adverse" (and he was a real sharp guy) and it drove me nuts.
Adverse = bad
Averse = avoidance
CONJURE BAG ALERT
Conjure Bag Says:
RECESSION 08-Q1
There's more of this CP/money market illiquidity going around (source bloomberg):
Coventree Inc., the Canadian firm that failed to sell asset-backed commercial paper because of a credit crunch, said some lenders balked at providing emergency funding for C$700 million ($661 million) of maturing debt.
Coventree requested funding from lenders because it was unable to refinance debt that matured yesterday after investors declined to buy new securities. Coventree's funds are among 17 asset-backed commercial paper issuers in Canada seeking emergency funding, said rating company DBRS.
...
Separately, Global Diversified Investment Grade Income Trust said in a statement today that one of its funds, MMAI-I Trust, failed to roll over its commercial paper that matured yesterday, and that Deutsche Bank AG declined to provide emergency funding.
"
There was some discussion here on ABCP recently, can someone refresh the issues (size, severity)?
New definition for safe investment; mattress
Gort | 08.14.07 - 12:26 pm |
disagree...
Firearms- the safe'ty investment
FWIW:
I have a money market ACCOUNT with a credit union(Baxter Credit Union) and I've called them - since I couldn't find any disclosures on the website or in the statements - and they assure me that I won't lose money in that account.
There may be a terminology issue that people should be aware of - before just getting money out. Seems like MM account, in this case, is different from MM (fund?)?
-K
I moved most of my savings to money market about 1 year ago. I'm doing this not so much because I'm risk averse as because I see a downturn coming. I'll reinvest in stocks when prices come down.
The downturn has apparently been delayed by the most incredibly stupid lending practices in the last couple years, so the downturn will be that much worse...
There's something about this that doesn't ring quite right. As two commenters above stated, what does the CFTC have to do with a money market fund? Secondly, money market funds don't generally have to worry about redemptions cuz they have enough liquid stuff (and I'm talking bills, discount notes, etc.) laying around that are money good. Thirdly, the whole "pier loans/balance sheet constraints" talk strikes me as a smokescreen. IB's and banks are still bidding stuff, except maybe ABCP.
In summation, the fund they're talking about here doesn't seem like your run-of-the-mill money fund.
"When will the containment move to cash accounts at banks? 'Sorry, the bank is not allowing withdrawals'"
Didn't that happen during the depression?
"The CFTC has no authority in this area," the CFTC official, who asked not to be identified, told Reuters. "This isn't something we do.
"We have no role in whether or not the company does this and whether the client accepts it," the official said.
OOOOPS! that sound's like something I would do.
If your money is at a Bank or Brokerage and it is FDIC insured you have no problem. If it is not FDIC insured you could have an issue IF it was invested in MBS.
If you are worried simply ask if your money market is FDIC insured and If not see if you can switch to one that is.
Quit freaking out everyone.
Suffice to say Tanta does not reflect the norm.
For better or worse...
Is it not the case that it's not the value of the cash flows for whatever this fundis invested in, but the illiquidity of the market in which it trades?
The problem here seems to be the market, not the security.
CP market--
300 billion last year...
s&p 500 earning's .... about 600bil
hmmm
"Rumors are flying that the Fed will cut the target rate today. Make of it what you will."
Accrued Interest
Journeyman said: "With the Fed we don't have to worry about runs on banks. Now if we can just figure out some way to avoid the "run on Sentinel" and other MMFs and hedgies..."
Oh, you don't know the half of it.
How many people know that even "ordinary" mutual funds have redemption limits that can be imposed at their (the funds') discretion?
If you guys are going to insist on panic, do it up right.
Sebastia
"The problem here seems to be the market, not the security." Reminds me of RE agent talk. When the price is going up it's "the market". When the price is going down it's the asset.
Sure the DISCOUNTED future stream of income from an asset is one way of valuing assets. Perhaps our collective opinions about the future have shifted.
Re: money market funds
When I first started my brokerage account, I remember they had some boilerplate info about, "Let us stick all of your deposited cash in this thing called a money market fund".
I checked the box that said, "No, please stuff my cash in a regular account"
Money market funds may seem cool, and well, all the kids are doing it.. and you can get a higher percentage return than just having your cash parked in Tbills.. but the risk is there. Just because nothing too drastic or volatile has happened to MMFs in the past, does not mean it can't happen in the future.
The lack of volatility in MMFs is the exact reason why one should stay away. However small the odds, something nasty can happen to them.
What are you going to do if you want to shift your cash to take advantage of a great deal you see in the markets, and some doofus on the phone says that it's best if everyone just leave there money in the MMF for now.
Fleckenstein went over this awhile back, no asset class is safe. Neither gold nor anything that you have to sell for cash. So, really, in that case you shouldn't even keep your cash in Tbills if you are planning on using it to speculate or invest since, by the time you are able to get ahold of the cash, the deals will be gone.
Though, to be fair, if it's just a long term store for money, I guess it'd be okay to use a MMF if you didn't care about it being frozen for an indefinite period.
Rant=Off
Good questions, gab. I know nothing about Sentinel. My MMF's with Vanguard and it's all the shortest of the short paper. GSE MBS repos and T-bills and Okefenokee County Municipal Bond swaps. I suppose there are "medium term" MMFs out there?
ferg,
On the Bankerdome scale where 1 is normal markets, 1990 was a 2.5, 1998 was a four and 1929 was a 9? This is around a 4.5.
What has changed over the past few weeks is the potential now for a real calamity in the markets. But where we are at the moment? Best described as a temporary and severe disruption.
Yal,
I have been wondering about you and Pashto for days now, thinking...nah...but maybe he does. Thanks for clearing that up!
Sentinel's self description from happier days:
(quote)
Sentinel is prudent in its placement of funds, in order to provide a minimum of risk while maintaining maximum liquidity. All client funds are placed in readily marketable government and corporate securities, a large portion of which are in overnight investments, allowing us to meet client withdrawal needs while maintaining the integrity of our portfolios. Sentinel is Client Focused-- we adhere to strict criteria in determining the clients with whom we will work. We choose clients whose businesses we understand, thereby enabling us to provide the flexibility, innovation and responsiveness that develops into long-lasting, client-sensitive relationships. This focus enables us to customize portfolios that will meet our clients' investment
(end quote)
The money qoute, repeated for all of the attornys out there;
"...minimum of risk while maintaining maximum liquidity....a large portion of which are in overnight investments, allowing us to meet client withdrawal needs..."
(Maybe the Fed should think about their overnight operations.)
Sentinel strikes me as an odd duck, very low profile for the size.
Here's a scenario for the capital markets:
-Levered edge funds are sitting on "unmarked" losses on credit securities. Their equity is already wiped out. If they sell, they mark them down and then face liquidation. If they don't, the prime broker (lending bank) carries the risk of further decline. Needless to say, they don't sell.
-The prime brokers realize they have all risk and no reward. They mark down the securities, make margin calls, seize the collateral and try to dump it.
-Talk of margin calls spreads on the Street. There is no liquidity for prime brokers to exit.
-Prime brokers have trouble rolling CP.
-Prime brokers fall victim to their own "marks" and report outsize losses.
-Prime broker financing dries up, and some firms are forced to liquidate.
-The liquidations reverberate through the markets, yielding concerns about the stability of lenders to the prime brokers (money center banks).
That's how the story should play out. Where are we in the process? What can the Fed do about it?
"If you are worried simply ask if your money market is FDIC insured and If not see if you can switch to one that is.
Quit freaking out everyone."
Fair enough, but is a situation possible where they say "We're stopping withdrawls temporarily - just as soon as the FDIC funds start flowing next quarter you'll be able to withdraw portions of your money in an orderly fashion"?
Banker talked about having a cash fund at home, and I've started wondering if that might be prudent for me as well.
CR,
I hope you are correct and tghe hung bridges are the lynchpin here. Because if that is true, there is reason for hope. Corporate HY defaults are still very low so investors are getting coupons every day which increase their cash position. At some point those positions are so large they simply have to begin buying and if one of those LBO's gets done in the market, then confidence is going to come roaring back and we're back to December 1998 wondering what all the fuss was about.
We'll see. Somehow it doesn't seem likley it'll be quite that simple.
I think the Fed can do very little about it.
Seb is right on one point: the current "correction" hasn't been much of one. We appear to have gotten extremely soft in the last five years.
I disagree with his overall sanguinity, of course. I think this is probably the start of something worse. We shall see.
Cheers,
prat
Also, here's the pertinent small print from the optionsXpress page on their MMFs:
3 Money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC) nor are they guaranteed by the U.S. government. Although funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a fund. An investor should consider the investment objectives, risks, and charges and expenses of a fund carefully before investing. A copy of the prospectus may be downloaded by clicking on the above link. Read the prospectus carefully before investing.
The small print may come in handy in the next few months.
Also, this incident really illustrates the limitations of the Fed - while they can maintain liquidity in terms of overnight rates, etc. they can't force people to buy stuff they don't want to buy.
Now if the Fed starts buying things outright, that changes everything. Again, I don't know if this is possible, but the Fed purchasing assets at inflated prices is money printing in its purest form.
It's just something to watch out for.
Right now I think the dollar is an OK place to be, but I keep my eyes wide open for any signs of systematic devaluation, and I think you should too.
http://www.sentgroup.com/faq.html#1
This link says Sentinel was registered with the SEC....in any case its a "greatest hits"
Marshall Banana,
A cash hoarde won't do you much good without tuna fish, weapons and ammunition...and AA and D batteries...lots of'em...and a short wave...and the Harvard Library of Classics...and water, lots of water...
"Rumors are flying that the Fed will cut the target rate today. Make of it what you will."
I think the Fed needs to play it safe, and wait until the Dow gets below 6,000 just to be certain this is the right move.
Banker- A cash hoarde won't do you much good without tuna fish, weapons and ammunition...and AA and D batteries...lots of'em...and a short wave...and the Harvard Library of Classics...and water, lots of water...
St. Pauli Girl, don't forget Pauli Girl.
I certainly wouldn't want my money in the US$. All fiat currencies look suspect too. The money supply is currently outa control.
This capping of gold at $680 is going to be B-L-O-W-N away by what's going on by the CB's.
Go GOLD.
Banker,
A true rarity - a person of words AND deeds!
Ammo is easier to manage with reloading gear, FWIW.
For some reason I see Paulsons face on Kevin Bacon's body atthe end of Animal house trying to control the mob..
"All is well, Alll isssssss Welllll"
Forget gold. It's no good in a liquidity crunch.
BTW,
Sentinel is clearly in a tough spot and that is as candid a letter to their investors as could possibly have been written.
Here is the $64 billion question, again, in a more limited context.
How does one mark to market securities in a clearly financially healthy company when there is no bid?
lets see we have a housing , credit, liquidity, commodity crunch..
How much copper(wiring, piping) is in an avg 4200 Sft house again??????
Can CFC take over control of the copper markets???
what about fannie and freddie
How does one mark to market securities in a clearly financially healthy company when there is no bid?
As Master of The Obvious, you should know that you don't.
"Forget gold. It's no good in a liquidity crunch.mp"
Sorry! Wrong! Gold is the only real money. It has lasted over 5000 years.
I am afraid the US$ won't.....
Well I don't know how you mark if there is no bid.
But no bid certainly does not point to a lot of value
How does one mark to market securities in a clearly financially healthy company when there is no bid?
How do you ever mark to market a money market fund???
Does anyone have a good link to the Mamas and the paps singing "there's a hole in the bucket,mariah"?
Sorry! Wrong! Gold is the only real money. It has lasted over 5000 years.
ack.. add Gold to the Religion and Politics list.
Seriously, Gold may be useful if you believe strongly in hyperinflation, and you think gold will benefit, and you just intend to hold it long term.
It is no use to you if you want to be able to convert it to cash at any given moment. What if no one has any cash to buy from you at the moment you need cash the most?
I am not sure that MM are FDIC I think they are privately insured or insured through a different federal program than FDIC. I think they can lose their principle if the short term loans they make are not repaid. They could be tied up for a while by redemptions or insurance. Of course that is when you would really want access to the money. My MM was making a lot of loans to people like BS, CITI, and WaMu.
Please correct me if I am looking at this wrong, since I am a novice.
Eli "What if no one has any cash to buy from you at the moment you need cash the most"?
If the US govt cannot print any more US$ then we are in trouble. LOL.
What's the real choice US$, zimbabwe or fiat currency.
Gold/Silver is the only real store of value around here from what I can see.
I am not sure that MM are FDIC I think they are privately insured or insured through a different federal program than FDIC.
w,
Scroll up to my post on the optionsXpress MMF. Their small print states explicitly that the MMF is not insured by the FDIC nor is it guaranteed by the federal government.
In fact, the MMF can lose money, but they try very, very hard to maintain a $1 per share value if that makes a difference.
This "there is no bid" stuff should be exposed for the obfuscation that it is - there IS a bid - Heck I'll bid - its just that they won't entertain the bid, viz.. the spread between bid and ask is really wide ( understatement alert ). So, tough titties. Deal with it.
But of course in a world full of longs - this is all to be expected - the whining acts as qualititative support vectors in the SVM modeling framework.
-K
Eli "What if no one has any cash to buy from you at the moment you need cash the most"?
LOL. I forgot to add. What US citizen has cash anyway? The US has a negative savings rate.
As long as they can use their CC's everything will be fine. LOL!
Tanta-my MMF at Vanguard is the Admirals Treasury and is described as "At least 80% of the Funds assets will always be invested in U.S.
Treasury securities. The remainder of the Funds assets may include securities
issued by U.S. governmental agencies such as the GNMA, the Small Business
Administration, and the Federal Financing Bank." What do you think?
My guess is the CFTC is involved because Sentinel runs money market funds for commodities futures traders, who have to hold "cash or equivalent" to cover their positions.
https://self-evident.org/?p=14
Paul,
Like I said, if one wants a long term store of value.. then gold would be fine if that's what suited one's tastes.
But, if you plan to convert it to cash (at some unknown time) so you can trade that cash for something else (say you got a margin call or you want to buy some "undervalued" asset), then it's not such a good help owning actual gold or being long gold futures.
That's all I mean. People can have plenty of cash, but that doesn't mean they will want to spend it.
When people are afraid to buy, some consider that a good time to buy.
idoc, what's the maturity on that stuff?
I'm not in Admiral. I'm in the tax exempt muni fund, whatever it's called.
They hold MBS and stuff for like, days. A lot of it is overnight.
I still want someone to tell me how you mark to market an overnight trade.
Idoc,
Don't worry those are not sub/alt a MBS. If you are still worried go to cash or FDIC insured.
Re the Sentinel mess... a commenter on DealBreaker:
When your money manager doesn't even know under which regulator realms it falls, thats probably a good reason to withdraw your money (or to not invest in the 1st place, but i digress)
.
Eli,
Take the example of Argentina. Bank deposits were frozen and some people literally had no access to cash. They had to sell off whatever they could to raise money. Talk about deflation: the story goes that a dealer from NY came down and bought 20 used Steinways in week (at fire-sale prices).
In that situation, its good to have cash, sure. Except peso's were worth a third of what they used to be, so that wasn't good deal.
If you had gold coins, you could sell them. Gold was money. Not stop-by-the-ATM money, but still fairly liquid.
The analogy holds if you think the dollar needs to fall. Otherwise dollars in your mattress will work just as well.
Paul Price:
"I certainly wouldn't want my money in the US$. All fiat currencies look suspect too. The money supply is currently outa control.
This capping of gold at $680 is going to be B-L-O-W-N away by what's going on by the CB's.
Go GOLD."
Amen to that!
Slo+wmotion, I'm a bit confused. You're saying that MM funds will be in trouble if they're invested in MBS, but aren't the current MM woes related to problems in the commercial paper market?
I thought "commercial paper" was just a very short term loan between companies and didn't have anything to do with MBS?
regarding cutting rates:
if they cut it shows they care about what is happening. If they apparently do nothing its sending a pretty hopeless signal surely?
Maybe we all need a break but it feels we are now at the event horizo
NakedShorts: This is (potentially) HUGE
"Sentinel Management Group Inc has asked the Commodity Futures Trading Commission for permission to suspend redemption has potentially huge implications.
Sentinel operates in the niche business of holding the excess cashover normal margin requirementsfor futures market participants, including hedge funds, futures brokers, commodity trading advisors, and similar entities. The inability of Sentinels customers to access their cash balances could have, at best, interesting implications if those traders cannot meet margin calls.
While Sentinel is barely a pimple on the wider money-market world, and in the overall scheme of things insignificant in the futures markets, it operates in a specialized niche where the consequences of its failure may spread out of all proportion to its size."
eli, thanks. I found the same statement "but they try very, very hard to maintain a $1 per share value". That is Classic. I actually pulled my MM last week. However, I could swear that when I asked the account rep when I set it up originally he went on about how they had private insurance for their MM so it was essentially risk free.
Does anyone know about private insurance between banks that covers accounts not covered by FDIC?
My guess is that Sentinel was at least a partial investor in short term Commercial Paper. As I understand it "Asset Backed" commercial paper is about half of this trillion dollar market place. This market looks like it has been and is freezing up.
As part of the structure of ASCP there are Bank "Liquidity Providers" whose job it is to pay off the first weeks commercial paper in the event that the second weeks commercial paper can't be sold in the marketplace.
Any how these banks are refusing to live up to their obligation to pay-off week 1 commercail paper.
Here's the Bloomberg report today
FT.com / Markets - Structured investment vehicles’ role in crisis
Here's a great article that discribes the structure and the current marketplace
FT.com / Markets - Structured investment vehicles’ role in crisis
If it gets so bad that gold is a viable option, you'd be better off owning large carat diamonds(in the past I would have just said gems, but now they can artifically color rubies and whatnot.)
I'm waiting on Merril Lynch to hear what kind of stuff they had in their treasury MMF.
LOL... gold. You know its crazy when the gold bugs emerge. Obviously we have a major hatch going on today.
I just called my broker about the MM thing - we've known each other for about 20 years, not just a business relationship. He said not all MM funds are the same - turns out the one I keep my slosh in is all short treasuries & agency... no CP, no CDO, no private label MBS... he added 'Couldn't you tell from the shitty return you are getting?'... So before you panic - check your prospectus.
I asked him to ask around - see if there really is the beginning of a panic or is this just more hype. He usually gets 'panic-o-grams' from corporate when something like this happens... say market drops 300 points or so. He shares some of them with me & we chuckle - having been through '87, '98... etc. Nothing unusual so far today.
Not yet anyway.
gng, I believe that many of the short term commercial loans are made to companies at the heart of the MBS debacle. Therefore it calls in to question their ability to repay them if they are in a liquidity crisis.
OOps here is the Bloomberg article
Banks Refuse Funding for Canadian Commercial Paper (Update2) - Bloomberg.com
Sentinel IS NOT a money market fund manager. Here is the scoop:
economics rebecca gomez goldman trader at economicsbriefing.com
"How does one mark to market securities in a clearly financially healthy company when there is no bid?"
For healthy companies I guarantee there is a bid. It's just a bid that somebody doesn't like! As for the securities with no bid... it's because they are very likely worthless or nearly so. The marketplace is filled with children who don't want to face reality. Let's be serious though... GE debt has A bid. Even GS/C/MER etc... have A bid. Enough with this "no bid" nonesense, because if there is no bid it's because you're holding CDO-type crap.
As for gold discussions... there are a million gold bug blogs... I sincerely hope this doesn't turn into one.
Be interesting to know who is doing the redeeming......grandma or CalPers?
Two completely different dynamics, right?
Some comments here that may lend some insight as to why this may have been a 1-off (vs a canary close to the entrance to the coal mine). Seems some of their clients may well have been reaching for that phantom positive alpha in the higher yield space.
Is This a Run on the Bank? What Sentinel Management's Redemption Halt Really Means-Minyanville
If today is bad, what will tomorrow bring?
Thanks, Anonymous. What ho:
The firm is open only to corporations, institutions and accredited investors. Accredited investors must have a financial net worth of at least $1 million or income in excess of $200,000 annually for the past two years. If you think about it, income in excess of $200,000 as a couple is not a particularly high bar.
Now, Sentinel's FAQs say the company normally invests client cash mostly in the overnight market, also called the Federal Funds Market, or Fed Funds Market. In this market, depository institutions borrow and lend the balances, or reserves, that they hold in accounts at the Federal Reserve. Remember last week when the Federal Reserve conducted those open market operations to provide liquidity. They did so in this market.
But back to Sentinel. While the firm says clients can withdraw 100% of its daily cash (using a cutoff time of 4 p.m.), not all clients want daily liquidity. And here is where we begin to see how there could be problems. In the firms' Frequently Asked Questions, Sentinel notes, "Clients who do not need daily liquidity for the entire amount of their investment can authorize Sentinel to invest for longer periods. This gives Sentinel the flexibility to seek slightly higher yields when the short-term yield curve is more steeply sloped."
Importantly, Sentinel says the firm buys "only the highest quality and most liquid securities (unless specifically directed by a client to seek higher yield in somewhat lower quality issues.)" Ah, there we go. If Sentinel was managing cash positions for clients who were not in need of daily liquidity, then those clients perhaps directed the firm to invest in somewhat "lower' quality" issues in order to boost their yields. And as we now know, demand for those higher-yielding securities has dried up. Consequently, the firm is unable to trade, or even price, many of those securities.
Commercial paper used to be always backed with bank lines. If the borrower couldn't pay, then the owner of the paper could get paid out by the bank. The borrowers paid substantial fees (stand-by fees) to the bank for this service. But now there is "asset-backed" commercial paper (ABCP) instead. And guess what the "assets" are?
Here is CME's statement on Sentinel:
link
It's an inkblot of sorts. You can read nothing into the statement or you can read everything.
To me, CME seems to be doing a lot of protesting and assuring. But, I am a charter member of the Dr. Doom Society, so I know my biases.
Horizon Cash Management LLC, a rival of Sentinel Management Group Inc., has not received an unusual amount of redemption requests from clients and is not halting redemptions, Horizon Founder Diane Mix said on Tuesday. "It's business as usual," Mix said in an interview. "We're not halting redemptions because our portfolios are very short duration and we have enough liquidity." Sentinel told clients earlier this week that its moving to halt redemptions to avoid having to sell securities at deep discounts.
As per Naked Shorts's column of today , the implications concerning Sentinel could be huge and it also explains why the CFTC was contacted concerning the attempt to halt redemptions. As per Naked shorts , "Sentinel operates in the niche business of holding excess cash- over normal margin requirements -for futures market participants ( including hedge funds , futures brokers , commodity traders , etc. ) The inability of Sentinel's customers to access their cash balances could have , at best , interesting implications if those traders cannot meet margin calls." Based on the niche they are in , this could be a big deal ( if they are allowed to freeze customer accounts ) for the riskloves out there.
I thought MMF is FDIC isnured.
http://www.capitalone.com/directbanking/hymm/index.php?linkid=WWW_Z_Z_Z_SP1_C1_05_T_SP25
the current "correction" hasn't been much of one. We appear to have gotten extremely soft in the last five years.
Clearly , because he large portion of sublsime holder's are trying to hold off reality...
the BSC situation took from Feb's request for redemtion til june, before we found that there's no book!
Reality avoidance continues...
But that chinese water torture drip on the forehead is working it's slow methodical magic
Thanks Lawyer L, libertas, and w. I didn't know that commercial paper could be "asset backed".
"Asset backed commercial paper": One company promising to pay another company, and if they don't they have to give up another companies obligation to pay out part of the payments that a group of homeowners promised to pay.
Lovely. Screw gold, I want to go back to using shells as currency.
REBear, a money market fund operated by a bank is FDIC ensured, just like any other bank deposit.
A money market mutual fund operated by a brokerage (like Vanguard), isn't FDIC ensured.
Attention Posters or Readers with no financial background,
What Dryfly said up post is spot on.
You can also go to morningstar.com find your mm fund and then click
"top holdings" icon on side of screen.
Remember alot of the posters on the web and in web blogs are fear mongers.
Dont let them scare you!
Usually a good barometer is if the name says "Enhanced" or "Enhanced yield money fund" or higher yield money fund there is a possibility that it holds MBS(non gov, non agency).
Money Funds that say "Money Market" are probably OK. If it says FDIC insured it's OK.
Yal,
I've been wondering about FirstFed's stock buy too, but figuring out the balance sheet of a bank is way beyond me. It is, at best, pretty unwise to be spending cash on this during a liquidity crunch, especially if you're one of the poster children of unwise lending (I think 90%+ of the loans in their portfolio are low-doc/no-doc, option ARMs.)
I think both FED and DSL have the potential for very dramatic drops, similar to what happened at LEND last spring. I'm not predicting failure, but I don't think if it would surprise anyone if they fell 50-75%.
I've been adding to my puts on each bounce up.
Hey.. this story has legs.. watching CNBC, they are saying that:
"CFTC says they have no authority to allow or refuse redemptions:"
"CFTC says they haven't been asked by Sentinel about this"
Fascinating.. I tell ya - the things people do in the service of Mammon. Sick.
-K
All I can say is that as of now I've cancelled all my money market sweeps (of any size) and I'll be using T-bills until calm resumes. It is a little more work, but I have the time.
Thanks sloooow and gng!
My brokerage accounts are with Scottrade. Should i call them and ask where my "cash balance" is invested?
From my long and exhaustive research (2 min. on a Bankrate article yesterday) bank money market ACCOUNTS are just another savings account insured by FDIC. MMFs are investments and not FDIC insured.
If I'm wrong, correct me.
Also, re gold: "But, if you plan to convert it to cash (at some unknown time) so you can trade that cash for something else (say you got a margin call or you want to buy some "undervalued" asset), then it's not such a good help owning actual gold or being long gold futures."
What about Pippi Longstocking? Perhaps gold hoarders could be classified under the Pippi Longstocking Effect.
How does one mark to market securities in a clearly financially healthy company when there is no bid?
Banker
Easy, last sale
Don't like the pitfalls of capitalist 'free markets'?
Doesn't matter what the last desperado sold it for, last sale is the market. No previous sale, no mark; previously sold, last sale.
REBear,
Yes.
Do not take anyone's word (including mine) go direct to your institution.
How does one mark to market securities in a clearly financially healthy company when there is no bid?
Banker
Easy, last sale
Don't like the pitfalls of capitalist 'free markets'?
Doesn't matter what the last desperado
sold it for, last sale is the market. No previous sale, no mark; previously sold, last sale.
dotcommunist
Dead on.
-K
FYI: If you buy any appreciable amount of precious metals you'll need to keep them stored in the seller's vault and pay for that. Doing so means there's no question but that the metals are legit and thus won't need to be re-assayed.
Your local coin shop won't be able to buy much more than a few ounces at a time. Only a major dealer can instantly buy back your, say, 100-1000 ounces of gold without hesitation, assuming you stored them in their vaults.
You cannot mark to market an OVERNIGHT trade.
Your accountants refuse to stay up all night marking it every hour. By the time you marked it, it's OVER.
It's the durations, not the collateral, sometimes.
"anybody here see any problems with moving my money to a money mkt that invests only in US Treasuries?"
Hell, no. I've been trying to do it for over a year but of course my 401K administrators don't know Treasuries from CDOs from their asses and couldn't care less. The only good news is that my MMF (Fidelity's FMPXX) dumped all their Fannie Mae paper back in 2004 and now sticks to CDs, medium-term notes, and repos. They may still have indirect exposure though.
"When will the containment move to cash accounts at banks? 'Sorry, the bank is not allowing withdrawals'"
My bank, rated the strongest in the nation (Washington Federal) limits you to $1000/day cash withdrawals.
I have about $40K in IRAs there and yesterday I asked if I could get it out in cash in the event of a panic. I got a good laugh and a lecture for scare-mongering.
Nemo > My guess is CFTC is involved because Sentinel runs mmf for commodities traders.
Nemo, not a guess anymore. According to Minyanville at Marketwatch 1259PM, disclosed indeed it was fat cats with a net worth of $1 mil or $200,000? income trading in commodities, and the odd markets normal home traders stay away from. Anyway, the Sentinel sure spooked me too, but i'm now more relaxed. Neal was right in his calling. This is an odd duck. Sorry, i don't know how to transfer the story to CR.
This looks ugly. I've got 3 months supply food and water in the house. I've kept that up since Sept. 11. What would be useful to add, $5,000 in cash or 5,000 rounds of ammunition? I'm guessing a 30 caliber round could become the new dollar bill if things get bad enough. (I'll trade you 5 rounds for that potato.)
John S > 3 months food and water in the house.
Well, you might as well use them as on-going consuption while you replenish them for your doomsday. Remember perishible items have a shelf life. So use FIFO. Thats FIRST IN-FIRST OUT. As these interesting times go by, you can adjust to increase or decrease your items as you see fit, like BB. lol.
Not so much Doomsday. I was living in Washington, D.C. on 9-11 and given the tenor of those times radioactive fallout was my worry. And having to dig a cave under the slab of my townhouse and staying put for 28 days while radiation levels diminished to something survivable seemed a real possibility. I since have moved hundreds of miles away. (And made $250K profit on that townhouse, BTW. Stupid bubble.)
I now keep food on hand because I've been laid-off 7 times in 15 years and not having to buy food for a few months really helps cut back on expenses
OK lets use a simple example so that we all understands. Lets say I have 100K in Fidelity Cash Reserves (aprox 100 bil fund, 27% invested in ABCP). I get freaked out because I have read about Sentinals "Cash Management" problems...I pick up the phone and buy 100K in Tbills.
Now...lets just say there is a real "run" on FCR and 40 billion wants redemption. There is no bid on ABCP, so what does the PM at FCR do? He sells the good stuff...bills, GSE repos, go down the list.
You now have a fund that has 50% ABCP with no bid...
Conservatively, 80% of the ABCP that is out there (500 bil) is held by money market funds.
Have a nice day.
BTW , Reuters mentioned in a story covering the Sentinel mess that by refusing to release their clients funds upon request , Sentinel is probably violating federal commodity laws ! An official from the CFTC said that an enforcement action probably wouldn't be launched against Sentinel because it would probably just make things worse ! Seems like the preferred path is a quiet cleanup of the mess with the hope that a big player will step in and assume Sentinel's accounts.... Nothing to see here folks , just move along !
Good night John Boy, turn out the lights.
Expired