SEC Approves New Money Market Regulations; Motives Questionable, ZeroHedge Strengthens Case For Gold

The following is from  This piece is so profound that a reprint is required:

The SEC passes regulation that only STRENGTHENS the case to own Gold

Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote…

…Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC’s just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: “We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares.” Too bad investors’ hardships considerations ended up being completely irrelevant.

Anyone who sees this regulation and feels safe leaving their money in money market funds needs to have their head examined. The “intent” is to prevent a “run” on money market funds when the next crisis hits. Essentially the passage of that regulation signals the high probability of such a crisis happening.

As alluded to in the post, the rate on 1-month T-bills has gone negative today. Think about what this means. When a big investor is willing to invest short term money and have returned less money than was invested just 30 days ago, it tells us that the investor is more concerned about getting his money back than he is about making money on his money. The investor is essentially paying a small fee to insure that his cash is returned with little loss (30-day T-bills would be considered riskless since the Gov’t can print money to honor the claim). Think about the signal from big investors that is being given here about the perception of systemic risk and the probability of systemic failure. The rate on 30-day bills went negative for quite some time before the collapse of Lehman and AIG.

This phenomenon only strengthens the case that investors should be putting as much as they can into gold and silver as vehicles for protecting and preserving wealth. When you own gold, you are not subjected to, and victimized by, the bad decisions and moral hazards being implemented by our policymakers, many of whom are puppets for the big banks who fund their positions of leadership (see today’s Congressional inquisition of Geithner and Paulson). When you own physical gold in your own possession (or a trusted custodian), your investment does not have any risk of counterparty claim AND you have no Government/SEC restrictions placed on your investment, like the SEC regulation just passed.

I will end with a quote from none other than the king of fiat money, Alan Greenspan, who said on September 9th, 2009: “gold still holds reign over the financial system as the ultimate source of payment.” Keep this in mind when you get your next investment statement from your broker or advisor.

As Gary and I discuss this issue another thought occurs that bares scrutiny.  All are aware of the massive debt load this country sags under.  The Fed has made it clear rates will remain low for an extended period.  However, other methods are required to support the Treasury bond market and effectively keep rates from rising when worldwide ability to support said debt becomes increasingly dubious.  We pose the question:  Are the rule changes on the $3+trillion money market business designed to force conservative money directly into treasuries? Will we see in details of future treasury auctions an increase in the amount purchased by “households” ?

The answers to these questions are unpleasant to ponder and only time will reveal the secrets.  While your mind churns, read the next story and see how it fits into the puzzle.

SEC says more changes for money-market funds – WSJ

WSJ reports money-market funds could be forced to pay out less interest under new federal rules designed to make them sturdier. With memories still raw from the 2008 meltdown of Reserve Primary Fund, the SEC released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently. The trade-off: These safeguards also will put pressure on yields that are already near zero. The changes likely will reduce yields by about 0.10 percentage point, said Pete Crane, president of Crane Data. This isn’t good news for money-fund sponsors already suffering from redemptions because of their low rates. Investors pulled about $540 billion out of money-market mutual funds last year, bringing assets to $3.3 trillion, according to Crane.

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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