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WSJ'​s "​SEC Continues To Monitor Money-​Market Funds For Risk", says, "While the government has dropped its special backing for money-​market funds, the Securities and Exchange Commission is obliging these funds to continue to report holdings and valuation information in certain circumstances." (​See yesterday'​s Crane Data News.) The Journal adds, "Under the rule, announced in a release on Friday and effective for one year, money-​market funds must report to the SEC information similar to that they gave to both the Treasury Department and the SEC during the last year under a Treasury guarantee program. That program, put in place last autumn to help stabilize the funds, expired Friday." It adds, "Money-​market funds experienced outflows of $​6.​6 billion on Friday, according to Peter Crane, president of Crane Data LLC.... [​Recent] outflows are large, said Crane, but aren'​t out of line in a week when quarterly corporate tax payments and individual quarterly estimated tax payments are due." "​It appears that outflows were primarily tax-​related, and that outflows related to the expiration of the Treasury guarantee are minimal," Crane said. See also, WSJ'​s "​State Regulator Opposes SEC Plan for Reserve Primary Fund Assets", which says, "The top securities regulator in Massachusetts is opposing a Securities and Exchange Commission proposal for distributing the remaining assets in the Reserve Primary Fund, the money-​market fund that struggled with investment losses and panicked selling after Lehman Brothers' collapse a year ago."

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The Wall Street Journal'​s The Intelligence Investor column writes, "​Don'​t Trip in Your Search for Higher Bond Yields". The Weekend Journal article says, "The Federal Reserve'​s policy of driving interest rates down toward zero may have kept the financial system alive. But it is killing savers, and driving them to do desperate things. Nearly 78% of taxable money-​market funds, the traditional parking place for savings, are offering 0.​1% or less in annualized yield, according to Crane Data LLC, a research firm. On a $​10,​000 balance, that will earn you a maximum of 83 cents -- yes, $​0.​83 -- in monthly interest income. All told, these funds hold $​1.​3 trillion that will generate a return of just about zilch for the people who worked so hard to save it. Is it any wonder that investors are barging into bonds?" The piece continues, "​At Vanguard Group, more than $​51 billion has cascaded into bond funds this year.... Industrywide, investors sank over $​40 billion into bond funds in August, an all-​time high for a single month, and are on pace to break that record again in September." The Journal quotes Robert Auwaerter, Vanguard'​s head of fixed-​income investing, "It'​s been like Niagara Falls." It warns, "That mightn'​t be troubling if investors were merely taking baby steps out of money-​market funds, whose three-​month average maturities minimize the danger of losses if interest rates rise. Remember, rising rates mean falling bond prices." Finally, it quotes Crane Data president Peter G. Crane, "People feel they have to choose between the frying pan of zero yields and the fire of risk. And they'​re sick of the frying pan, so they'​re jumping into the fire."

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Reuters writes "​Investors pull out of money market funds as guarantee ends". It says, "Investors stepped up their withdrawals from money market funds this week days before a federal guarantee to safeguard their assets expires on Friday, industry data show. The outflows could sharpen scrutiny of how to regulate the funds, which now hold $​3.​5 trillion despite paying almost no interest of late. Investors took out a total of $​55 billion from money market funds on Tuesday and Wednesday, far more than usual, Peter Crane, president of fund-​watcher Crane Data LLC, said in an interview." Crane told Reuters, "There'​s a glimmer of evidence that there is money leaving because of the end of the guarantee." The article added, "Still, Crane and other industry analysts said they do not expect panicked withdrawals since investors have had months to prepare for the end of the insurance program." See also, Reuters' "​U.​S. Treasury to keep $​1.​2 billion money fund premiums", which says, "​The U.​S. federal government will keep about $​1.​2 billion in payments collected to backstop money market funds even after its insurance program ends on Friday, a U.​S. Treasury official said." See too, ICI'​s weekly "​Money Market Mutual Fund Assets", which says, "Total money market mutual fund assets decreased by $​62.​60 billion to $​3.​482 trillion for the week ended Wednesday, September 16." Finally, see LA Times' "​U.​S. money market fund guarantee, R.​I.​P.", which quotes, "Pete Crane, editor of the Money Fund Intelligence newsletter, notes that even though the guarantee program is disappearing many of the debt securities that money funds own retain some kind of government or Federal Reserve backstop, thanks to the alphabet soup of lending programs put in place amid the credit crisis last fall."

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The Wall Street Journal writes "​Low Yields Dog Money Funds as Guarantee Is Set to Expire". It says, "The government guarantee for money-​market fund investors expires Friday, but plenty of worries remain for the industry. Fund managers complain of rock-​bottom yields that are pinching profits and regulatory uncertainty. Moreover, the end of the guarantee program may spur investors to switch funds. A year ago, the federal government was forced to step in after Reserve Primary Fund '​broke the buck,' or dipped below the $​1-​per-​share level typically maintained by these funds, sparking withdrawals. The government stabilized the situation by guaranteeing shareholder balances in participating funds as of Sept. 19, 2008." The Journal adds, "Until now, some investors may have been reluctant to sell participating money funds because they didn'​t want to lose the guarantee, said Peter Crane, president of Crane Data, which tracks the money markets. While some funds are keeping extra cash on hand this week to handle any increase in redemptions, many managers said they are largely unconcerned about the guarantee'​s expiration." See also, USA Today'​s "​Money market mutual funds remain at risk of '​breaking the buck'".

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The MutualFundWire.​com writes from Schwab IMPACT on "​The Future of Money Funds" panel. See also, WSJ'​s "​Money Funds Prepare For Guarantee'​s End", James Stewart'​s "​A Year Later, How Safe Is Safe?", and WSJ'​s "​Lehman'​s Demise Hit Repo Market With A Lag". The first WSJ story quotes Peter Crane, president of Crane Data LLC, which tracks money-​market fund assets. "It'​s as if a tsunami went through, and then washed out so fast that it did damage to the population, but all the structures and such dried out so fast that, amazingly, it may end up that we go back to where we were before September 2008." The article continues, "​Money-​market funds held about $​3.​58 trillion in assets just before the Reserve news hit and dipped to $​3.​46 trillion late last September before investors regained their composure, according to the Investment Company Institute. Assets in the funds had surged to $​3.​9 trillion by March of this year and have now slipped back to about $​3.​5 trillion, according to the ICI. The Securities and Exchange Commission proposed reforms for money-​market funds in early July. Some had hoped those would be in place before the guarantee program expired, but that'​s highly unlikely. Crane notes that, through other government programs, about 80% of the securities money-​market funds invest in are supported until Feb. 2, 2010. Looking ahead, Crane said money-​market fund yields will be reduced by anywhere from two to three basis points to 20 to 30 basis points, likely in the five- to 10- basis-​points range."

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MarketWatch'​s "​The Day the Buck Broke" subtitled, "Lehman'​s collapse almost brought down the money-​market industry," says, "​As the threat of a Lehman Brothers bankruptcy grew last September, many money-​market fund managers were wary but not worried. Their industry had quietly grown over the past generation to become a major rival to the banking system, with $​3.​5 trillion in assets. It had weathered crises such as the collapse of Baring Plc, the Asian currency mess ... and the fall of hedge fund giant Long-​Term Capital Management. Though some managers were talking to their boards and their staff, there wasn'​t a feeling of impending disaster. But all that changed in the late afternoon of Sept. 16, the day after Lehman actually went down. Reserve Primary Fund -- the oldest and fifth-​largest fund in the business -- said it had about $​785 million in Lehman debt that was now worthless and as a result it would price its shares at 97 cents." They quote Peter Crane, "Countless other money-​market funds were poised to break the buck.... The mini-​run would have spread to all funds." The article adds, "Despite the reform efforts, some say that last year'​s events may simply have to be seen as a once-​in-​a-​lifetime event." "`​The SEC may be able to prevent one or two dominos from falling, but nothing could have prevented the complex series of events that led to what happened [​last September]," said Crane. See also, `​Bloomberg'​s article on Reserve, "​Sleep-​At-​Night-​Money Lost in Lehman Lesson Missing $​63 Billion".

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The recent surge in money fund-​related articles in the general press continued this past week with Friday'​s USA Today asks "​Why do you own a money market fund?", CNNMoney.​com'​s "​Why money market funds may get riskier", Chuck Jaffe of MarketWatch'​s "​Stupid Investment of the Week: Floating NAV money fund is lost at sea", InvestmentNews' "​Floating NAV for money market funds is not seaworthy, critics say", and, finally, WSJ'​s "​Judge Limits Credit Firms' 1st-​Amendment Defense" (​involves Cheyne Finance). USA Today columnist John Wagoneer wrote, "Move your savings from a money market mutual fund to a one-​year bank CD, and you'​ll earn enough interest to buy a new tent for your flea circus -- but not much more. At these rates, it'​s a good idea to ask yourself why you own a money fund. Even at today'​s rates, money funds are a good tool for reducing risk in your portfolio. But if you'​re looking for income or just stashing some cash, you'​d be better off elsewhere. The average money fund yields 0.​06%, according to iMoneyNet, which tracks the funds. That'​s $​6 a year on a $​10,​000 investment. At that rate, you'​ll double your money in 1,​200 years." Investment News says, "DWS Investments, however, is jumping the gun by announcing plans for a money fund with a floating NAV before the SEC makes a final decision, said Peter Crane, president of Crane Data LLC, a money fund tracking firm. There is a lot of opposition to the idea because many industry experts -- including him -- believe a floating-​rate NAV would actually make things worse, he said." Crane says, "It'​s fraught with peril and confusing to the market place."

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The Wall Street Journal writes "​Deutsche Bank Unit Proposes Floating NAV For Money-​Mkt Fund". It says, "Deutsche Asset Management has proposed launching a money-​market fund with a floating net asset value, designed to serve as a complement to a traditional money-​market fund. The asset manager has proposed in a letter to the Securities and Exchange Commission that the regulator consider permitting mutual-​fund companies to offer both stable net asset value and floating net asset value money-​market funds, a notion many in the industry have spoken out against.... Peter Crane, president of Crane Data, which tracks money-​market fund flows, said the Securities and Exchange Commission will likely take a long, hard look at the proposed fund." He says, "This certainly appears to be a new type of animal. The entire money-​market fund business standardized around the $​1 NAV and amortized cost.... If such a fund'​s net asset value per share dipped below $​1, it could be misunderstood and spark fear, Crane said. Many of those who have commented on the SEC'​s proposed reforms have spoken out against the notion of a money-​market fund with a floating net asset value, he noted." See also, MarketWatch'​s "​Floating NAV money-​market fund on tap", which says, "As the money-​market fund industry grapples with how to reform in the wake of last year'​s troubles, one fund firm is breaking out with a plan to launch a money fund doesn'​t try to maintain a $​1 share price. DWS Variable NAV Money Fund would be the first publicly-​available money-​market fund to opt for a floating net asset value -- marking its assets to market each day -- in more than 20 years, say industry professionals." It adds, "Peter Crane, president of Crane Data, said he '​couldn'​t imagine' the fund being a success." "People don'​t mind [​a] floating NAV, they just don'​t like it when it goes down," he said. "​Crane added that in his mind a floating NAV money-​market fund was essentially simply an ultra-​short bond fund. He also said that he didn'​t think the launch would lead to more floating NAV funds," says MarketWatch.

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