Suspending Money Market Redemptions Is Now Legel; SEC Approves New Money Market Regulation In 4-1 Vote...Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant.Anyone who sees this regulation and feels safe leaving their money in money market funds needs to have their head examined. The "intent" is to prevent a "run" on money market funds when the next crisis hits. Essentially the passage of that regulation signals the high probability of such a crisis happening.
As alluded to in the post, the rate on 1-month T-bills has gone negative today. Think about what this means. When a big investor is willing to invest short term money and have returned less money than was invested just 30 days ago, it tells us that the investor is more concerned about getting his money back than he is about making money on his money. The investor is essentially paying a small fee to insure that his cash is returned with little loss (30-day T-bills would be considered riskless since the Govt can print money to honor the claim). Think about the signal from big investors that is being given here about the perception of systemic risk and the probability of systemic failure. The rate on 30-day bills went negative for quite some time before the collapse of Lehman and AIG.
This phenomenon only strengthens the case that investors should be putting as much as they can into gold and silver as vehicles for protecting and preserving wealth. When you own gold, you are not subjected to, and victimized by, the bad decisions and moral hazards being implemented by our policymakers, many of whom are puppets for the big banks who fund their positions of leadership (see today's Congressional inquisition of Geithner and Paulson). When you own physical gold in your own possession (or a trusted custodian), your investment does not have any risk of counterparty claim AND you have no Government/SEC restrictions placed on your investment, like the SEC regulation just passed.
I will end with a quote from none other than the king of fiat money, Alan Greenspan, who said on September 9th, 2009: "gold still holds reign over the financial system as the ultimate source of payment." Keep this in mind when you get your next investment statement from your broker or advisor.
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I do own gold, but have a IRA, 401(k) even accounts at brokers. Are you saying cash out of the system entirely? Go to phisical FRN's and gold, silver? time to check out 100%?
ReplyDeleteThat would be ideal, provided you can get comfortable getting out of your IRA and paying the penalty.
ReplyDeleteI said several years ago that eventually the Govt would move to seize all retirement funds and put them under Govt management. We are now seeing the Obama Government issue statements to that effect, at least for public and private 401k plans. This is a movement will continue to develop and snowball.
You should call Andy Schectmen and Miles Franklin Coins. I recently saw a presentation by him in which he stated that over the last couple of years he's moved all of his money out of his IRAs and paid the penalties for the very same reasons that I just mentioned.
But you should call him and chat with him so you aren't just hearing it from me.
How can we trust ANYTHING being done by our Government, especially given the current backdrop of the Congressional proceedings going on today with regard to AIG/Geithner/Paulson?
Dave in this stench infested crimex game, paper wins all the F'ing time!!! Fed is giving money away and pissing on all usd holders faces, and yet people sit around, play with their own toes and sell gold and rally the usd. What sort of f'ud up world do we live in?!?!?! The Chinese were screwed royally once by the British with the opium trade and now will get the shaft again with their usd holdings! They havent learnt dam shit!
ReplyDeleteAt every fomc announcement I read the same BS, [fed holds steady, but not unanimous]. But still the brain dead, dumb as a door knob speculators panic into treasuries and sell "risky" assets like gold and silver. What don't the s*** for brains pretcherites understand about the debt + liability ice berg headed our way. All they care about are the pretty lines on their charts! God the next time I see Pretcher on tv I'm gona throw my wifes shoe at him!!! Sorry for the rant :p
ReplyDeleteanliu, feel free to rant away anytime! the difference between the Opium Wars and now is that the Chinese aren't stupefied from smoking narcotics. Make no mistake, there's a very real and directed reason why the Chinese are trying to get their citizens to buy gold and silver and why they are in the process of establishing Hong Kong/Shanhai as the next major gold/silver trading hub of the world.
ReplyDeleteWe're in a period of history when it's more appropriate to feel sorry and despair for Western citizens than for the Chinese.
Based on everything I've read over the past 8 years, I'm convinced the Chinese are largely hedged and what isn't hedged will eventually remedied by reappropriating the wealth they lost. My bet is gold/silver will be the appropriation vehicle.
The fact that they passed this likely means they are preparing for another collapse/crisis. The worst is yet to come... 2010-2020 = the decade of black swans
ReplyDeleteAnother trick to force money into government debt markets. Most short term bonds are at 0% yield and the 30 day went negative. I will gladly accept all amounts over 10 million dollars and return -.005% to anyone interested.
ReplyDeleteLOL. GYC, if the rate were set by the Govt, I agree. But that rate is competitively set by the market and it's indicative of an avalanche of demand for 30 day "risk-free" paper as I explained above. And you know me, I'm the first one to consider anything that might be conspiratorial, but the negative rate on 30 day Bills is the ultimate in safety seeking (besides gold, of course).
ReplyDeleteDave: My mother has much of our family wealth in gold coins in safe deposit boxes at Wells Fargo and U.S. Bank. Do you think they're safe there?
ReplyDeleteIf not, what would you recommend? Divide them up amongst the kids and have them hide them in their houses? ANY advice would be most appreciated on what to do with gold coins.
THANKS! NewMan
NewMan. I think for the time being you mother's gold is fine in the safe deposit boxes. I would keep a close watch on the political environment, however, and if Obama starts doing things like "consolidating" retirement funds under the Government umbrella, you should probably follow your alternative plan.
ReplyDeleteAnother better reason to own gold. What is worse you might ask Obarky losing credibility or Iran "threatening the whole planet with at best a Hiroshima style weapon.
ReplyDeleteIn a letter cosigned by nine US senators, President Barack Obama is urged to apply “crippling sanctions” on Iran immediately, warning that failure to do so imperils the entire planet as well as (more importantly perhaps) his "credibility".
The great thing about Americans is their stupidity, everything they say makes you split your sides. A U235 bomb like the one that hit Hiroshima requires a B52 style delivery vehicle, it is far too heavy to put in a missile. This is why we have these pictures from the 2nd World War of huge big birds flying into Japan bombing coastal cities. The idea that the Iranians could send a huge aicraft on an unregistered flight number(if they possessed one one which they don't) into Israeli airspace is totally laughable given modern air traffic control.
To make a credible deterrent they have to run the Busher reactor for at least a year to manufacture the right amount of plutonium. Get it plutonium not uranium (different atomic number like difference between gold and silver), leave the Non Proliferation Treaty, announce to the world they were building a bomb and then enrich that plutonium to weapons grade to make a modern credible missile. Even then they would have expect retaliation from Israel's 160-300 modern effective nuclear weapons. Sort of country wide suicide called in strategic thinking MAD (Mutually Assured Destruction).
But Americans are so dumbed down by a non education system that they have no knowledge of basic engineering facts so these bogey man scares seem credible too them. It's incredible that a population could be so ignorant.
BUT IT COUD BE VERY GOOD FOR GOLD.
The manipulators are having their way in Gold/Silver today. There is a growing call for an equities crash here possibly back to 4000 DOW. Do you think Gold can diverge from this equity crash?
ReplyDeleteJoe M.
Joe, here's my view: first, i don't think the market will crash like that because the Fed/Treasury will be forced to re-up QE and print a lot more money. the alternative being letting the system collapse.
ReplyDeletehaving said that, if there is an "accident" in the stock market, i believe gold will outperform any of the stock indices. silver may get hammered.
but after the accident, the market will look up and see gold hangin' (lower but not a lot lower) and money will rush into mining stocks, which will initially get hit with stocks.
look at the relative performance in gold/HUI in the Feb/Mar '09 period. The SPX hit a new low but the HUI didnt' come close to its Oct '08 low.
THis pattern is what happened in 1929 and 1987 - and the market knows it.
And if I'm wrong, everyone except the truly wealthy elite are fucked.
Note that Soros is calling Gold an ultimate bubble--I think not--He is a shill member of the council on Foreign relations who probably started this whole mess to transfer the wealth to its wealthy elite membership. Greenspan, Rubin, Summers, Biden, Clintons, Bushes, JPM bank--members all...
ReplyDeleteI saw Soros' comment. This was my response on Clusterstock:
ReplyDeleteThe Fed can't tighten. Unless it wants to collapse the system. Just think about what the cost of Treasury debt would be with just a 50 basis point raise. No way.
Funny, because if Soros thinks gold is a bubble, then he must think the dollar/euro/yen are all very rediculously cheap. Anyone else think that?
What has Soros accomplished other than his big wins in the 1980's? Nothing, especially since Jim Rogers left him.
For Soros, the biggest asset is having politicians like the Clintons and Obama in his back pocket.
One step closer for the Obama Oligarchy in the manadatory establishment of T-Bill 401K IRA'a.
ReplyDeleteTake a pill, Komrade, soon you will be the sole buyer of US T-Bills!
you got that right, Anonymous
ReplyDeleteBe careful guys. While I agree that precious metals are the way to go for the long run, the assumptions that gold will rise and will not be price manipulated is short sighted. Right now paper metals can mess with the prices of physical metals and unless we see a dislocation of physical metal prices from paper (like we saw with Silver in 2007-2008) then trying to cash in when gold/silver "soar" is a gamble.
ReplyDeleteHas anyone else noticed how the USD index is rising? I really don't see anything to back it up, but since the moguls have been messing with everything else I could definitely see them try to deflate commodities with a high USD. As long as they don't get a market panic (i.e. flight to safety) they could pull it off.
As a side note the person wanting to know if they should keep the coins in a safety deposit box. My $1.05 worth is not to trust the banks further than you can throw them. Back in 2006/2007 boxes were opened without owner consent and some were liquidated because they were marked as "inactive" - which they were not. Read the fine print of your the agreement. I don't believe there is a law stating that cannot go in there at any time they want. If the bank should default (FDIC takeover) can you get to the contents? Also, they are probably not insured from theft. If the house(s) you plan to keep it are in safer neighborhoods and the people stashing them can keep their mouths shut (even to other family members) then I would urge you to consider home storage. Do your research since this topic has come up often on other forum and member boards.
http://abcnews.go.com/GMA/story?id=4832471&page=1
Good luck.
Probably a stupid question, but why would anyone put money into a negative rate TBill instead of just keeping the money in a bank or even their mattress? I can understand the bank part I guess... bank fails, FDIC fails, etc. But mattress? I guess you're talking about people with super high amounts of cash buying these things? So much that it wouldn't fit easily in their mansions? ;) Thanks, great article... just want some clarity on this point.
ReplyDeletemetaforge: not a stupid question and you answered it for yourself LOL. Rates on 30-day Bill would be driven negative by large insitutional investors who don't trust a money market sweep, short term commercial paper or short CDs. Bank money is only guaranteed up $250k per account. We're talking billions here. Imagine you're running a Pimco fund or you run some really wealthy dude's money and you have $100 million in cash from proceeds of something you just sold. What are your alternatives besides the ones I listed above OR 30-day Treasury paper?
ReplyDeleteYou're going to park money in 30-day bills because, in the worst scenario, you know the Govt will print paper to meet maturities. Sheer supply and demand drives the yield negative and it implies that anyone willing to accept a negative return is implicitly making the decision to PAY money in order to insure the RETURN of that money.
EVENTUALLY, and who knows when, a very large portion of that money is going to go into gold and silver, and then we'll really see an upside explosion in the metals.
@Anonymous. Take a look at the chart of the dollar and gold from 1/05 - late 11/05. USD ran up from 80 to 92, or 15%, and gold ran up from 420 to 505, or 20%.
ReplyDeleteNo idea why the dollar is running up right now and I haven't seen anyone else who can give a reasonable explanation. You are right, the metals could easily get manipulated lower here, but my view is that we are going to see gold begin to be used as a flight to safety vehicle.
For the past few months, the huge premiums paid on the big Asian markets are stunning. Shanghai has lately been sporting $10-$12 premiums, which is an unheard of premium until recently. Viet Nam is back to over $40 today. This all signs of massive physical off-take. And we know what is going on London.
I talked to staff at Ameritrade yesterday re this could make stocks worthless. He said when I sell I can "sweep to money market, or sweep to cash." This seems to indicate an escape hatch is still available but I need to find out more. But this does look like a scheme to make stocks go to zero for SOME of us (those not related to the Drexels, Rockefellers etc.) then later they get Obama to say, "Turn In Your Metals" then we are back to Feudalism under their real boss, the British Crown. The Queen was depicted in 2012 as escaping disaster. If we want financial freedom there is only one way. Back Ron Paul's agenda. Or let the Old East Coast Wealth make you dirt poor.
ReplyDelete