NY Times on "Parking Lot for Cash"
The New York Times writes, "Panic in the Parking Lot for Cash." The article explains, "Money-market mutual funds are sometimes called 'parking lots' because they have been safe places to store cash while earning a modest return. And most of the time they have been about as exciting as watching a flat piece of striped black asphalt. Until recently. With short-term interest rates driven to nearly zero during a global pandemic, some money-market funds are closing down, while others are changing strategies, waiving fees and flirting with the previously unthinkable -- negative yields, in which investors would be charged for the privilege of holding the funds. The upshot is that in terms of risk and return, many investors might be better off taking their cash back to the bank." The piece continues, "Institutional investors make up the bulk of investors in the funds, which held $5.2 trillion at the end of May but are now down to $4.8 trillion, according to Crane Data, which tracks money-market funds. Corporations use money-market funds because they offer slightly higher rates and fewer restrictions, such as limits on withdrawals, than insured bank money-market accounts, said Aquiles Larrea Jr., chief executive of Larrea Wealth Management.... Pressure on money-market funds intensified again in March when the coronavirus surged in the United States and the economy sank. Corporate customers started pulling cash out of so-called prime money-market funds, which hold corporate debt. Fund managers sold assets, which can lower returns, force managers to freeze redemptions or even push the net asset value below $1. Once again, though, the Fed stepped in with a temporary support program." The Times adds, "As money fund managers work to reconfigure their business, industry experts expect to see more efforts by the Fed to institute permanent reforms and safeguards. 'Money funds had seen a series of reforms after the financial crisis that went into effect over the last decade. This was the first test of those, and the jury's still out,' said Peter Crane, chief executive of Crane Data.... But Mr. Crane said that thanks to the history of Federal Reserve intervention, people who park their money in standard, uninsured money-market funds aren't likely to be in real danger if they stay put. 'When it comes to individual investors, you hate to say, 'Don't worry about it, the retail investor will always get bailed out,' but don't worry about it, the retail investor will always get bailed out,' Mr. Crane said."
