The Money Market Piggybank is Shattered

USA Today is out with a mystery that I will help them out with…

They ask the question “Where did the $1.1 trillion that just came out of ultra low-yielding money market funds just go?”

Then they go on to point out that the average bank account’s interest rate is .75% versus the ridiculous .04% that traditional money market funds are paying, so maybe some of the $1.1 trillion went there.

Then we are treated to the usual stats about “how much gosh darn cash has been sucked into bond mutual funds” – $700 billion in the last 18 months says TrimTabs.  The growth of assets in bond funds cannot explain the money market sapping alone, because we all know that a lot of those inflows are coming from stock people that are scared and asset allocators that are hopping aboard the bond bandwagon (bondwagon?).  It’s the disillusioned stock market money that’s pumping into bond funds more than anything else.

The article also posits that investors may be skipping the money market funds and going straight for money market instruments, like buying treasuries directly.  I’m not seeing much of that at the retail level at all.

So where did a trillion dollars just go when it left the universe of over 1600 money market funds?

Easy.  Some of it may have gone to bond funds, but my bet is that an inordinate amount went toward everyday Americans paying their everyday bills.  That’s right, I believe that the investor class is finally starting to pay regular expenses and cover the bills with their money market funds, turning that New Normal maxim about the coming of higher savings rates on its ear.

I don’t have statistical confirmation of this hunch just yet (and I’m actually not sure where to get it), but this is what I’m beginning to see firsthand.  Brokerage and investment accounts are becoming a piggybank for investors who are nowhere near retirement.

They will not be buying-and-holding as the commercials have programmed them to do while their businesses and household balance sheets are on their last legs.  They will put the capital that’s been earmarked for “investment” to much better use than a $40 annual return on $10,000 in a money market fund.

With underemployment still raging and business confidence still plunging, the only surprise is that people hadn’t started making use of money market cash en masse long ago.

Source:

$1.1 Trillion Pours Out of Low-Yielding Money Market Funds (USA Today)