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U.S. Money Market Funds Draw Largest Weekly Inflows In Seven Months (Story from Nov. 3)
”About $16.9 billion flowed into US money-market funds in the week through Nov. 8, according to Investment Company Institute data. Total assets increased to $5.712 trillion from $5.695 trillion the week prior.”
Which begs the question of who do you think is selling out and depositing their funds there? Bezos? Institutions? Small investors playing the FOMO game will be left w/o a chair when/if the music stops.
I would think in-flows into MM is good for banks, no? Sounds from this article that money from (short term) bond funds may be going into MM's, which would make me kind of a contrarian since I have been adding to RSIVX as CD's and treasuries mature.
The ICI release came in at $5.76 trillion in m-mkt funds on 11/21/23. Banks have lot of money just sitting at the Fed collecting 5.4% risk-free. Lending business is slow. So, most banks don't need deposits, although some do and are seeking deposits through the expensive brokered CD channel. True, HTM vs AFS Treasuries on balance sheets remain a huge problem still. https://www.ici.org/research/stats/mmf
”The ICI release came in at $5.76 trillion in m-mkt funds on 11/21/23.”
Thanks @ yogibearbull for updating the money flow. Nov. 8 was the most recent I was able to dig up.
I agree with @Old_Joe. I’m waiting for “something to break.” Banks might be the weak link. Don’t know, Suspect this has a lot to do with some recent backing off of the strident central bank talk. Equity markets love it!
Which begs the question of who do you think is selling out and depositing their funds there? Bezos? Institutions? Small investors playing the FOMO game will be left w/o a chair when/if the music stops.
Huh? Who would not do this when spare cash can now earn 5.3% ??
And what does the last sentence even mean? What is FOMO and music-stopping with mm funds returning this new rate safely?
I myself am puzzled at how ML can offer the slightly higher-rate Fido MM funds (w significant ERs, no less) which are $1M min at Fido itself. Wild.
@Mark said, ”Small investors playing the FOMO game will be left w/o a chair when/if the music stops”
ISTM Mark feels big money has been selling equities and moving to cash while smaller retail investors are still throwing money into stocks due to FOMO (”fear of missing out”).
I’d agree that’s the way investor cycles typically work. Big money leads the way and than flees early. Smaller investors come late to the party and stay too long. Not sure that describes the entire picture now. If you look beyond the NASDAQ (+36% YTD) and the cap-weighted S&P (+18.7% YTD) some markets (notably small caps) haven’t participated in the rally. And the DJI is up only a modest 6.4% YTD. That’s well below its 37,000+ high reached roughly 2 years ago.
Admittedly I did not connect the dots very well. My opinion is that the smart money folks are possibly selling stocks and parking the proceeds in MM funds while the smaller investor keeps buying stocks and funds as the magnificent 7 keeps dragging the market higher. Just a different thought than others from my reading of the Reuters blurb.
No need to over-think this one. As long ago as April 2023 there were articles being written about the huge MM inflows. The last line of this article pretty much says it all:
I don’t know why so many seem to assume that investors are selling stocks to put in money markets. I’ve been holding steady on stock allocations but selling bonds funds to invest in MMs, Treasuries and CDs. What are often called “plain vanilla bond funds “ are the biggest disasters in my portfolio over the past two years. I expect stock funds to fluctuate a lot in value. I did not expect my “safe” bond funds to crater. How many years will it take for investors to recover from losses in bond funds? It’s not like they’re known for 20-30% returns in a year, like stock funds.
I still have substantial money in short-term and multi-sector bond funds that have fared less poorly, but I’ll keep buying Treasuries and CDs as long as the generous yields hold up. I’ll take a guarantee 5% return any day over bond funds that continue to lose money. At some point I’ll start buying bond funds again, particularly if CD and Treasury yields drop a lot. However, my CD/Treasury ladder will take me out five years.
I track ICI fund allocations monthly, so I looked up the recent history.
In mid-2022, when the Fed just started to raise rates, the allocation to m-mkt funds on 5/23/22 was 14.95%. The most recent report on 9/30/23 had it at 18.37%. That +3.4% shift is huge as +/- 1% is about +/- 300 billion. The shift was from all other categories - stocks, hybrids, bonds. (There is about 1-month lag in the monthly data, so 10/31/23 report will be available soon)
A sample point during the ZIRP in 2017 had m-mkt allocation only at 12.9% (but that seems high in hindsight considering that the rate then was almost 0%). 12/31/17 OEFs & ETFs: Stocks 59.3%, Hybrids 7.0%, Bonds 20.8%, M-Mkt 12.9%
These allocation shifts include both inflows/outflows AND price changes.
Not here. The month of October have scare off many toward the safety of money market funds. From the peak-to-trough cycle in end of October, S&P500 gained over 10%.
Can't say I've sold anything specifically to go into MM's since I have always held more cash than most. I have some cash parked from recent sales of equity funds that I plan to redeploy into equity funds. But not today. Maybe not Monday either. Still watching the market come to terms with higher for longer.
Given the fungibility of MM AUM and commercial bank deposits, I think bank deposits should be part of the analysis / conversation.
Just saw a Bloomy headline indicating $1T moved from banks to money market mutual funds. If any one has subscription, feel free to post details like how the migration may have impacted bank liquidity, profitability, and solvency. On the flip side, fund companies are minting money with their high ER on MM funds.
Thanks Yogi. Excellent chart / post. A few years ago I thought nothing of having 10 K sitting at the credit union earning near 0. Cash rates were so low it didn’t much matter and I felt good supporting the local CU. But like most everybody now I’d guess, that cash has migrated to mm funds. So it goes,
Which begs the question of who do you think is selling out and depositing their funds there? Bezos? Institutions? Small investors playing the FOMO game will be left w/o a chair when/if the music stops.
Okay, I confess--its me! I have been increasing my MM funds with each CD that matures, or CD interest that is paid. I am not ready to put the money back into new CDs or start gambling again in the bond oef market, so my 5+% CDs will be the recipient of my available cash for awhile.
Comments
Here is the weekly report with the next one out tomorrow.
https://www.ici.org/research/stats/mmf
If this continues it may well cause additional bank failure problems, at least for some marginal banking operations.
Banks have lot of money just sitting at the Fed collecting 5.4% risk-free. Lending business is slow. So, most banks don't need deposits, although some do and are seeking deposits through the expensive brokered CD channel.
True, HTM vs AFS Treasuries on balance sheets remain a huge problem still.
https://www.ici.org/research/stats/mmf
Thanks @ yogibearbull for updating the money flow. Nov. 8 was the most recent I was able to dig up.
I agree with @Old_Joe. I’m waiting for “something to break.” Banks might be the weak link. Don’t know, Suspect this has a lot to do with some recent backing off of the strident central bank talk. Equity markets love it!
And what does the last sentence even mean? What is FOMO and music-stopping with mm funds returning this new rate safely?
I myself am puzzled at how ML can offer the slightly higher-rate Fido MM funds (w significant ERs, no less) which are $1M min at Fido itself. Wild.
ISTM Mark feels big money has been selling equities and moving to cash while smaller retail investors are still throwing money into stocks due to FOMO (”fear of missing out”).
I’d agree that’s the way investor cycles typically work. Big money leads the way and than flees early. Smaller investors come late to the party and stay too long. Not sure that describes the entire picture now. If you look beyond the NASDAQ (+36% YTD) and the cap-weighted S&P (+18.7% YTD) some markets (notably small caps) haven’t participated in the rally. And the DJI is up only a modest 6.4% YTD. That’s well below its 37,000+ high reached roughly 2 years ago.
"Money goes where money grows."
https://www.marketplace.org/2023/04/05/billions-moved-to-money-market-funds/
I still have substantial money in short-term and multi-sector bond funds that have fared less poorly, but I’ll keep buying Treasuries and CDs as long as the generous yields hold up. I’ll take a guarantee 5% return any day over bond funds that continue to lose money. At some point I’ll start buying bond funds again, particularly if CD and Treasury yields drop a lot. However, my CD/Treasury ladder will take me out five years.
In mid-2022, when the Fed just started to raise rates, the allocation to m-mkt funds on 5/23/22 was 14.95%. The most recent report on 9/30/23 had it at 18.37%. That +3.4% shift is huge as +/- 1% is about +/- 300 billion. The shift was from all other categories - stocks, hybrids, bonds. (There is about 1-month lag in the monthly data, so 10/31/23 report will be available soon)
5/31/23 OEFs & ETFs: Stocks 58.89%, Hybrids 5.76%, Bonds 20.40%, M-Mkt 14.95%
9/30/23 OEFs & ETFs: Stocks 57.72%, Hybrids 4.83%, Bonds 19.08%, M-Mkt 18.37%
A sample point during the ZIRP in 2017 had m-mkt allocation only at 12.9% (but that seems high in hindsight considering that the rate then was almost 0%).
12/31/17 OEFs & ETFs: Stocks 59.3%, Hybrids 7.0%, Bonds 20.8%, M-Mkt 12.9%
These allocation shifts include both inflows/outflows AND price changes.