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November 14, 2007

Money Market Funds

-- by Dave Johnson

I guess I'm just ahead of my time... I've been warning about money market funds, and now it's really hitting the news:

Mounting concern about money-market funds,

Millions of U.S. investors with cash in these mainstream vehicles are asking that question as some leading banks, investment managers and mutual-fund companies take steps to shield money funds from potential losses on troubled debt in their portfolios.
Do you want your money in a place where managers are "taking steps"?

So what can you do?

... if you are concerned about your money fund, experts say there are some ways to investigate.

The first -- calling the company to ask about the fund's holdings -- might seem daunting given the complexities of many of these portfolios. But in fact the request can test a company's responsiveness to its customers, observes Bruce Bent, who created the money fund 37 years ago.
"A number of funds will say 'we don't give that out,'" said Bent, whose New York-based firm, The Reserve, has about $80 billion in money-fund assets, none of which, he adds, is exposed to subprime loans or SIVs.
If the fund company isn't forthcoming, he says, "take your money out and say goodbye."

No shit.

And there's always what I have been recommending:

The ultimate safe move would be to put your cash in a bank money-market or savings account - they're insured up to $100,000 and sport comparable yields to money funds, which recently averaged about 4.6% for taxable investors.
Meanwhile, Advisers aren't ready to dump money-market funds yet - MarketWatch
,With money-market mutual funds scrambling to cover their costs as credit meltdowns spread, some advisers say they're seeing more interest from high net-worth clients in short-term, bond exchange-traded funds.
One of those is Jerry Slusiewicz. But the president of Pacific Financial Planners in Newport Beach, Calif., doesn't recommend investors pull out of their money-market funds just yet.
Not just yet?
Several major financial services firms have moved to protect money-market assets in recent months. The latest is Bank of America Corp., which on Tuesday said that it plans to use a $600 million reserve to shore up a group of its money-market funds. Another big financial-services firm, Legg Mason Inc. has made public plans to establish credit lines of roughly $238 million to keep intact credit ratings of two money-market funds.
Did I read that right? They're putting hundreds of millions in to cover their money market funds so people don't lose money? So if you have money in one of those funds the only reason you aren't losing money is because the fund managers are pumping their own money in to shore it up? So what happens if the parent companies are in trouble - which they certainly will be if they'reputting in hundreds of millions to cover the money market funds!

Remember, the money you have in a money-market fund can drop - you can lose principal.

And Atrios has found a General Electric managed fund that is already in such trouble it is paying its depositors only 96 cents on the dollar.

Posted by Dave Johnson at November 14, 2007 4:11 PM

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