Lunchtime Links 5-25

May 25, 2010

Question of the day: Why is there still nearly $3 trillion parked in money market mutual funds? They yield nothing, they aren’t FDIC guaranteed, they CAN break the buck, and they’re less liquid than bank accounts. Thinking back to autumn ’08, when credit markets start to seize up, cold hard cash stuffed in your mattress looks more appealing. You can withdraw cash from a bank account, not so a money market fund. Not that I’m recommending that, it’s just that if you’re not getting any benefit by holding the money market fund, why bother? (401k money may be stuck, but others aren’t…)

Does Buffett deserve his outsider’s rep? (NY Mag, ht Ed Harrison) This blog’s view is no, of course. Good piece, though it misses many of the other public policy issues Buffett has been on the wrong side of. PPIP, the stress test, the bank levy. Also, his bank holdings survived thanks to TLGP.

Case-Shiller: house prices “weakening” (CR) Mortgage rates may be plumbing their lows, thanks to flight-to-safety buying of Treasuries, and that may cause demand to pick up a bit. But so much was pulled forward by the expiration of the homebuyer’s tax credit on May 1st, you gotta think prices are headed back down. Especially considering that there are 7.3 million homes that are in foreclosure or delinquent. That’s a lot of shadow inventory.

InterOil smashed again after lame press release (BizInsider) IOC has been a favorite short for hedgies for a long time. Looks like it’s finally working out for them.

Four Spanish savings banks make initial merger pact (NYT) This came after the Bank of Spain took control of CajaSur. Marc Chandler at Brown Brothers Harriman offers this thought today: “The European debt crisis is not simply a Greek phenomenon.  Spain is the focus now.  Spain (sovereign and private) owes foreign investors roughly $1.1 trillion.  In comparison, Greece’s external debt is closer to $236 bln.”

Germany eyes wider short-selling ban (Graham/Aloisi, Reuters) Populism that will fail to stabilize markets. If Europeans truly want to squeeze the shorts, they should announce dramatic budget cuts that solve their underlying solvency problem.

LIBOR reverse cliff-diving (Reuters)

Hubble finds a star eating a planet (NASA) This is an artist’s rendering, not a pic from space. Still, pretty cool.

Useless cat (imgur) Click on image to enlarge.




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We are oozing down a deflationary spiral as credit destruction begets contraction which begets more credit destruction. The housing market is just a symptom of this. Milton Friedman is turning over in his grave because the solution is so simple.

Rolfe, you are from the University of Chicago! Get on your soapbox re QE!

Posted by DanHess | Report as abusive

“Why is there still nearly $3 trillion parked in money market mutual funds? They yield nothing, they aren’t FDIC guaranteed, they CAN break the buck”

My guess is that it can be attributed to moral hazard when they did guarantee them through HP-1163. If they break the buck again, I’m sure they’ll be guaranteed against losses by the U.S. Treasury.

Posted by cswake | Report as abusive

[…] – Further, further reading. […]

Posted by FT Alphaville » Further reading | Report as abusive

Well I’m no expert but don’t you think a lot of that refelcts a loss of confidence in the stock market and indecision about where to park money?

When I was growing up nearly every investor lived by the mantra that the Dow grew at an 11% average for the last seventy years and would continue to do so forever. People now realize that there are many twenty year windows that show practically no increase at all and if you weren’t totally in at precisely the right moments you missed those gigantic moves that make the average look so great.

Now with high frequency trading (which account for such a high percentage of trades) clouding the picture and events like the recent liquidity crisis, there is a realization that the Market is a lot more like a Casino than we ever admitted to ourselves before.

Sure, the small investor can work the edges because he can work in and out of positions easier than the big boys but the whole substance of the Market is so clouded these days people don’t want to play like they used to. Just my humble opinion.

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