Tuesday, August 21, 2007

[Latest Global Dollar Liquidity Measure: +15.1% annual growth rate; latest Endogenous Liquidity Index: -31.3%]

While talking to my broker in New York City, the conversation was interrupted a couple of times by clients who wanted out of the firm's flagship money-market fund, and into ... T-Bills! "The ones who are really scared", my broker told me, "are all Wall Street types: traders, fund managers, etc". On the other hand, Main Street types (businesspeople, managers) are completely unperturbed. So who's right: nervous Wall Street, or happy Main Street? I'd say Main Street's right — but I'd like to see spreads fall a bit more. Meanwhile, here's some stuff I've been reading:

- Macro Man and a fine piece on the TED spread. ("Bills right now are trading like dot-coms", adds Brad Setser).

- The Chinese central bank raises key interest rates. More bad news? Not necessarily: it may even reinforce the view, championed by Morgan Stanley's Stephen Jen, that the G7 is not the only source of growth and demand. (Plus: Beijing opens up markets).

- The German banking system in a "not uncritical situation" overall. (Plus: Deutsche Bank taps the discount window).


Anonymous said...

As a "type", though not on Wall Street, I take a little issue about who is "right". About a month ago I tried to find out just what was in my Money Market fund and can say with confidence that it was almost impossible to discern just what the hell was in there. Sure there were rock solid names that were of little concern, but in addition there was a not immaterial amount of vehicles that I could not for the life of me find what the hell they were using short funding for. And yes, they were asset backed vehicles. Still the chance that they would default seemed extremely low to me(or that the big firm that put me there would let it happen), but when I glanced at the yield I was getting on this mainly CP fund vs. the yield on a fund entirely devoted to guvies and agencies I was giving up..what 20,25bps...it's a horrible skew.
The chances of a money market fund breaking the buck have almost certainly increased, though they remain quite low, but is 20-30bps worth it? I think the "types" are quite right here, the smallest chance of losing 5,10,15% in return for measly bps is not irrational at all.

Agustin said...

Thanks for the info!