Yesterday's Wall Street Journal featured an article entitled, "Investors Are Hungry for Risk -- and Holding Record Cash Sums," which was subtitled, "Some analysts see the investor balances in money-market funds as a bullish sign for stocks and bonds." The piece explains, "Stocks and bonds have surged in November. With record investor balances in money-market funds, some analysts are optimistic that they have more room to run.... The S&P 500 is up 8.7% this month, while the Nasdaq Composite has climbed 11%. The yield on the benchmark 10-year Treasury note, which falls as bond prices rise, is down by nearly half a percentage point to 4.483% -- a substantial move in a market where daily moves are measured in hundredths of a point."

It continues, "Investors are plowing cash into stocks and bond funds. Invesco's QQQ exchange-traded fund, which tracks the tech-heavy Nasdaq-100 Index, reported its largest weekly inflow in history the week of Nov. 13. Funds that track high-yield bond indexes -- the higher risk portion of the corporate bond market -- reported their two highest weekly inflows on record in the middle of November. Meanwhile, institutions and investors together have a record $5.7 trillion parked in cash-like money-market funds, many of which are yielding above 5%, according to the Investment Company Institute."

The Journal states, "Some on Wall Street see the cash as a bullish signal and a potential tailwind for stocks and bonds if the inflation outlook continues to improve. Others say some of that money has simply shifted to higher-yielding money markets from traditional bank accounts. They question the idea that the money is waiting on the sidelines and ready to enter the market.... 'For the first time in a long time, cash is a competitor,' said Ali Dibadj, chief executive of Janus Henderson Investors. 'But I think as soon as short-term rates start to tick down, you're going to see large flows to other assets.'"

They say, "At retail brokerage Webull, Chief Executive Anthony Denier has seen firsthand the newfound appeal of cash to everyday investors. Webull began offering a 5% yield on cash held at the brokerage earlier this year to remain competitive with money-market funds. The offering attracted deposits, resulting in much-higher-than-normal cash allocations for Webull customers that Denier said only began to shift this month. 'All that cash that customers have been piling into their brokerage account the last six months to earn yield, they're finally starting to use it this month and we're seeing it put into action,' Denier said."

The article comments, "David Littleton, chief executive of asset manager F/m Investments, said he thinks the record sum in money-market funds is contributing to the velocity of the rally in beaten-down assets like small-caps. 'With the new inflation outlook, people either got greedy or they got fearful they were going to miss out on a rally, and you saw a 5% up move in the index,' said Littleton. 'There's definitely some cash waiting for these moments, but I don't think you'll see it all move overnight.'"

Finally, it adds, "In October, money-market funds posted their first significant monthly outflow since interest rates began rising. Yet with short-term rates still around 5%, sitting in cash is more attractive for many investors than it used to be. For that reason, David Kelly, chief strategist at J.P. Morgan Asset Management, says he isn't expecting a mass exodus from money-market funds soon. 'What I see here is a growing realization on the part of individuals and even institutions that there are just better yields to be had in a money-market fund than bank accounts,' Kelly said."

In other news, a Prospectus Supplement for BlackRock Liquidity Funds states, "On November 16, 2023, the Board of Trustees of BlackRock Liquidity Funds (the 'Trust') on behalf of its series California Money Fund and New York Money Fund, approved a proposal to close each Fund to new investors and thereafter to liquidate each Fund. Accordingly, effective at 1:00 P.M. (Eastern time) on December 1, 2023, the Funds will no longer accept purchase orders from new investors. On or about February 23, 2024 (the 'Liquidation Date'), all of the assets of each Fund will be liquidated completely, the shares of any shareholders holding shares on the Liquidation Date of each such Fund will be redeemed at the net asset value per share and each Fund will then be terminated as a series of the Trust."

It explains, "Shareholders may continue to redeem their Fund shares at any time prior to the Liquidation Date. Neither Fund may achieve its investment objective as the Liquidation Date approaches. Shareholders should consult their personal tax advisers concerning their tax situation and the impact of the liquidation on their tax situation."

For more on liquidations, see these recent Crane Data News articles: "JPMorgan Liquidates E*Trade Shares" (9/7/23), "Morgan Stanley Latest to Abandon ESG MMFs" (8/16/23), "Goldman Liquidating Resource Shares" (7/19/23), "SSGA to Liquidate State Street ESG Liquid Reserves" (9/19/22), "DWS Liquidating Govt Cash Mgmt Fund" (7/7/22), "Cavanal Hill Liquidates $71M U.S. Treasury Service Class, Added to Fed RRP List" (5/22/23), "Ivy Funds Liquidating ... Again (6/2/22); "AIG Govt MMF, MuniFund Liquidate (8/3/21), "Western Files to Liquidate Tiny MMFs (6/7/21), "BlackRock Liquidates Ready Assets (2/11/21), "Delaware Liquidates Govt Cash Mgmt" (1/11/21); "DWS Liquidating Govt CR (BIRXX)" (11/25/20); "BMO Liquidating Inst Prime MMF" (11/17/20); "Morgan Stanley NY Muni MM Gone" (10/5/20); "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ" (9/28/20) and "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations (2/20/20).

Finally, the Federal Reserve Bank of New York's "Liberty Street Economics" published a brief, "The Nonbank Shadow of Banks." It explains, "Financial and technological innovation and changes in the macroeconomic environment have led to the growth of nonbank financial institutions (NBFIs), and to the possible displacement of banks in the provision of traditional financial intermediation services (deposit taking, loan making, and facilitation of payments). In this post, we look at the joint evolution of banks -- referred to as depository institutions from here on -- and nonbanks inside the organizational structure of bank holding companies (BHCs)."

The piece states, "Using a unique database of the organizational structure of all BHCs ever in existence since the 1970s, we document the evolution of NBFI activities within BHCs. Our evidence suggests that there exist important conglomeration synergies to having both banks and NBFIs under the same organizational umbrella."

Under the section entitled, "The Evolution of Banks and Nonbanks: Alternative Views," it say, "The traditional view of financial intermediation is that banks and nonbanks evolve independently. Banks are fundamentally depository institution that make loans and facilitate payments, and their evolution remains anchored on these 'core' activities. NBFIs, on the other hand, are seen as a heterogenous bunch -- insurers, specialty lenders, investment funds, et cetera, with each segment operating under distinct business models, governing structures, and even regulations. One commonality of NBFIs, however, is that they can substitute for banks as financial intermediaries."

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