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More Downward Pressure

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September 17, 2008 – Comments (1)

NEW YORK (MarketWatch) -- One of the original and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck."

The size and speed of the withdrawals was stunning. At 3 p.m. on Tuesday, Primary Fund's assets stood at $23 billion, a $40 billion hit from the $62.6 billion in the fund on Friday, a spokeswoman for The Reserve told MarketWatch late Tuesday.

Reserve Primary has both institutional and retail accounts. "This appears to be the first case where a retail investor will lose money in a money market fund." said Peter Crane"

They didn't just break the buck, they shattered it," said Don Phillips, managing director at investment research firm Morningstar Inc.

 http://www.marketwatch.com/news/story/money-market-fund-breaks-buck/story.aspx?guid=%7B56A2CEE5%2D5A53%2D4A27%2DA4BA%2D585CFBE173A4%7D

$40 Billion of redemptions in two days.....that means $40 Billion dollars of debt instruments will be liquidated in the next few days.  Anyone think that will put more downward pricing pressure?

Now how do you think people will behave once they learn that their MMF money is not guaranteed and their funds could be frozen????  Anyone expect a run on MMFs?

At the end of the day, most of Americans wealth is in equity....the equity in homes, the equity in retirement accounts, and the equity in our businesses.  It is clear from the events of the past few weeks that we have to question whether there is much real equity left in anything. 

The equity of our  largest mortgage companies and insurance company has basically been wiped out....same with one of our largest investment banks and our largest thrift.Next will be airlines and autos????  Soon there will there be much left to buy anything? 

Our food banks are running out of food but we are giving money to foreign banks.  Millions of families are losing their homes.  MILLIONS.  Our largest computer company tells us sales are slowing around the world which will likely cause thousands of additional layoffs.  Nortel this morning tells us customers cutting back on service which will result in even further cuts.

If you want to keep sleeping....don't let me stop you....pretty soon all will wake up and learn this nightmare is reality.  The world markets are crashing and many aren't aware of it.  Due to severe price declines the Russian markets have been halted two days in a row.  China is cliff diving as well.

During times of severe economic stress....terrible geopolitical consequences can result if left unchecked. 

Right now things are a mess and getting much worse.....Technology, Finance, Autos, Airlines, Retail, Restaurants, Construction, Real Estate....ALL CONTRACTING SEVERELY..... 

At this point.....since most of us are being insulated from reality......it will be interesting to see how we will be awaken.

1 Comments – Post Your Own

#1) On September 17, 2008 at 5:19 PM, leo744 (< 20) wrote:

What can I say that hasn't already been said! Hang on it's going to be one hell of a ride and I don't think we're going to like it!!!

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