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Crane Data Founder and President Peter Crane speaks today at the Treasury Management Association of New England'​s 2008 Conference in Boston on the topic "Is Your Money Market Fund Safe? Examining The Crisis in Cash". Crane answers with a resounding "​Yes", citing money market mutual funds nearly spotless record of safety, their extensive body of evolving regulations, and the sector'​s enthusiastic support from both investors and fund sponsors. No money market mutual funds have "broken the buck" during the current crisis, and none are expected to, says Crane.

The Great Liquidity Panic of 2007-​8 is nearly ended. While the episode was painful for fund advisors, who likely will end up losing hundreds of millions on soured extendible ABCP and SIV investments, this is a mere fraction of their almost $​15 billion in annual revenue -- more than Hollywood earns at the box office, says Crane. Money fund investors came out unscathed. He says to keep in mind that money market mutual funds have survived similar events in the past, including the 2001 default of Pacific Gas & Electric and the 1994 spate of "​derivatives" bailouts. Nineteen ninety four also saw the only case in history of a fund "​breaking the buck" as the tiny ($​82 million) Community Bankers U.​S. Government Money Fund was liquidated at $​0.​96.

Crane cites money funds' protective quality, maturity and diversity regulations -- Rule 2a-​7 of the Investment Company Act of 1940 -- as one of the keys to their success. Money market mutual funds are not allowed to invest in lower quality or longer maturity instruments, and they are only allowed to own a 5% maximum position in any single issuer. Money funds also are exempt from other mutual funds' "​mark-​to-​market" requirement, using "​amortized cost" accounting.

Funds have also withstood the unprecedented stress in the money markets due unprecedented inflows, over $​1 trillion over the past year, which were helped in part by the Fed'​s interest rate cuts. Prudent investment policies and actions by the vast majority of fund advisors were instrumental too. Extremely diversified investors bases, long track records of performance, and of course deep-​pocketed parent companies didn'​t hurt either. Money funds continue to stand while almost every "​cash" substitute around them has faltered; their record of safety has only grown during the recent crisis, says Crane.

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Bankrate.​com asks "​Savers: Are better yields ahead?" The article quotes Peter Crane, "It looks as though consumers will not hit that maximum level of pain, which is yields below 2 percent [​yields].... I would expect that the most probable outcome is flat to slightly higher toward the end of the year." Crane also argues that inflation hasn'​t risen substantially, contrary to popular belief. In other news: Investment News writes "​Edwards reps pan Wachovia cash sweep plan" and Bloomberg'​s "​Auction-​Rate Losses Cost Google, UPS $​1.​8 Billion".

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The latest issue of Financial Week features "​Rate rise flattens money funds", which says, "The yield advantage that money market mutual funds have enjoyed over direct investments in securities during the past nine months is likely to wane as the Federal Reserve signals it has finished cutting interest rates. But after auction-​rate securities and other troublesome investments burned corporate cash managers during the credit crunch, experts are split over how swiftly corporate investors will return to direct investments." It quotes Pete Crane, "The biggest buildups [​in money fund assets] ... have occurred in periods of falling rates. This latest one has been the largest buildup in the history of cash." FW adds, "`​But that era may be coming to an end, he said, since the '​lag effect' reverses when rates increase."

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Russ Wiles of the Arizona Republic writes "​Money funds: Another bubble deflating?" The article asks, "​First stocks, then real estate. Now, money-​market mutual funds?" Wiles says, "​If you didn'​t notice, a lot of cash had been piling up in money-​market mutual funds lately. In fact, global money-​fund assets hit a record $​5 trillion in the third quarter, with U.​S. money-​fund assets topping $​3.​5 trillion in early April. But investors are starting to pull out their cash ... reports Money Fund Intelligence newsletter, which speculates that 'the largest cash buildup in history may be at an end'". Reasons include easing fears and falling yields. "Crane Data, which publishes the Money Fund Intelligence newsletter, cites a 2.​08 percent average yield on money funds at the end of April. That'​s down from nearly 5 percent roughly a year ago."

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The Dreyfus Corporation has filed a supplement to its Dreyfus Money Market Funds prospectus stating that the fund will disclose its portfolio holdings daily. Mutual fund news source ignites alerted us to this filing, and posted a story today entitled "​Dreyfus Makes Bold Move on Money Fund Disclosure". (​To see Dreyfus holdings page, click here.)

The filing says, "Each Dreyfus money market fund will disclose daily, on www.​dreyfus.​com, the fund'​s complete schedule of holdings as of the end of the previous day. The schedule of holdings will remain on the website until the fund files its Form N-​Q or Form N-​CSR for the period that includes the date of the posted holdings."

The ignites.​com article quotes Dreyfus spokeswoman Patrice Kozlowski, "Dreyfus has taken this step in recognition of the industry'​s move towards greater transparency of money market fund holdings."

The article adds, "​Money fund watchers say that while Dreyfus -- which went relatively unscathed by mortgage-​backed securities exposure -- may gain some short-​term marketing ground by being the first to disclose money fund holdings on such a regular basis, it'​s the analytics behind the holdings that investors really seek."

It also quotes our Pete Crane, "​I would say daily holdings are going overboard. Investors are asking for the holdings, but what they really want is a breakout." Once the SIVs are gone, "​I don'​t think people will really care. It'​s like looking at the control panel of a 747. It'​s not going to make you fell any better."

Clearwater Analytics, CacheMatrix, Crane Data, and others have projects underway to obtain and analyze daily holdings, and other fund companies have been disclosing holdings more frequently (​in some cases daily and weekly on request). We'​ll undoubtedly hear more on this topic in coming weeks.

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