Inflation is over/on-the-way-out (not really but it’s hardly “runaway” anymore) with only a .25 rate increase. That’s good.
Yahoo Finance article quote: Notably, the Fed set the stage for ending its rate-hiking cycle, doing away with language for “ongoing rate increases” in interest rates. That’s good.
The standard language about “But in the future … if we have to … we will…be responsive etc etc” regarding future rate hikes. No suprises there. What else are they gonna say? “We give up?” This is good. Plain vanilla. Steady-hand stuff.
Interest rates and unemployment projectstions didn’t change but a smidge. This is good. Again, predictability and steady hand stuff.
So, why did the market stand around loitering with its hand in its pockets all day waiting for the big reveal, then decide “Oh this is bad news!” ?
Mostly, rhetorical questions I guess, along the lines of shaking my head and mumbling "what the heck…?
Mr Market probably thought “OH NO!!! RECESSION!!!”. As we have discussed before, Mr Market is psychotic, bouncing from one fit of hysteria to the next.
I think the late-day nose-dive was a reaction to the “banking crisis could hit the economy” talk that came out later in the day. Up until then the news was relatively good. Small hike, only 1 more hike this year…
I haven’t been pinned to the screen reading market news all day but who was talking about bank failures spilling over in any palpable way? The Fed Guy didn’t mention it did he? And that “news” has been part of bank talk since Day-1 last week when that bank tanked. Why did it take on more gravitas today all of a sudden? At 2:00 pm? It’s just weird
I get a kick out of market headlines. In the morning the headlines are the market does X because of Y. In the afternoon the market does Z and the headlines don’t change.
Was it traders, investors, or algorithms who made the decision? Did they collude? For practical purposes think of it as a drunken random walk. I think it’s best to avoid trading on announcement or news days which tend to be more volatile than most. Yesterday’s charts were off the charts! Notice how volume took off!
NYT Dealbook by Andrew Ross Sorkin…the smoking gun…
But Yellen appeared to dent market confidence yesterday when she told senators that the Biden administration would not consider adopting universal deposit insurance without congressional approval. The comments — which appeared to walk back suggestions she made a day earlier to an American Banking Association gathering — revived fears that the government was dithering about how to restore depositors’ confidence in banks.
So the market tanked yesterday because Sec Treas. indicated uninsured accounts would not be insured unless congress decided to invent instant insurance of uninsured accounts? She couldn’t be talking about all the other accounts that were and are already insured by law? Talk about sense of entitlement
Insured by law up to $250k. She is saying amounts over that Congress needs to act. Last week accounts with over $250k got a reprieve. They were made whole, the reason the market is partying.
Serious question here - cause I don’t know the answer and asking smarter folks than me…
I posted earlier that I was looking into our “cash” positions held in a couple of mutual funds at Fidelity. I do not think that these “cash” positions are considered cash at all and are not backed by FDIC insurance.
If you read the prospectus, the funds are largely made of up “repurchase agreements” which I also looked up and did not quite understand what this were either. Seems like they are agreements with the Treasury for short-term purchases and buy-backs - whatever those are.
Anyway, given that I’ve heard of RARE situations where mutual funds have “broken the buck” value, and they are not FDIC insured, I’ve been moving those large “cash-like” positions over to CD ladders where the funds ARE FDIC insured.
Does anyone know, or has anyone out there quantified if these massive “cash-like” mutual funds started to break the buck due to some yet to be discovered financial mess - what might be the impact?
Are others considering the same strategy with their cash-like mutual fund positions?
Probably over-reacting but I don’t think it’s unwarranted. They are not FDIC bank accounts, ergo anything can happen. Personally, I like to keep things simple and liquid. My “cash” is mostly in a MMF that holds only T-Bills. I suppose it could also break the buck for other more technical reasons not related to the underlying investments, but I see that as a possibility so remote it’s up there with WWIII, asteroid strike, and similar. The rest of the cash is in a checking account for ongoing bill paying.
I cannot advocate that you do the same but those funds and just what they hold as “cash” make me nervous.
It’s not mutual funds but money market funds that break the buck.
What Is Breaking the Buck?
Breaking the buck occurs when the net asset value (NAV) of a money market fund falls below $1. Breaking the buck may happen when the money market fund’s investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund uses leverage to create capital risk in otherwise risk-free instruments.
About insurance I don’t know but brokers do have insurance. Check with your broker.
When I increased my cash position in late 2021, money market mutual funds, like mine at Vanguard, were conservatively invested in mostly govt bonds, but NOT fdic insured. So I followed Wendy’s lead and maxed one joint fdic insured account and put some excess cash in another. Riskaversejoel
38P I’m not sure what to do either. I have a lot of money in a Vanguard money market. Yielding over 4% so that is nice. But not FDIC. Someone at work said “If XYZ fails then it’s time to steal guns and ammo from Wal-Mart because our money is not good” and there is something to that. Fidelity and Vanguard are very likely TBTF institutions. I also don’t think either are overly aggressive or risky institutions.
I just bought my first CD for a small amount, a 3-month at 5.05%. I’m unsure still if I am going to create a ladder of these with the bulk of that money market money or not. I’m also not sure if I am being paranoid or prudent.
Treasury bills and notes…that is the safest thing right now. Assuming a Vanguard failure you’d still have those. I do not know the law. As Vanguard is custodial you might not have them.
