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09-24-2008, 12:58 PM
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#1
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Full time employment: Posting here.
Join Date: Apr 2005
Posts: 524
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Credit crisis question.
Hank Paulson has been saying that companies are having difficulty with short term financing. I was at an investment seminar a few months ago, and the analyst said the same thing. If this is true, why is my money market fund paying 2%? Shouldn't the lack of available credit drive rates up? I asked the same question to the analyst and he didn't have an answer. Bet someone here does.
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09-24-2008, 03:19 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Everyone is risk averse. Any company without triple A credit is being avoided even by the money market funds. The recent "breaking the buck" of a major fund has everyone scared. Companies that could otherwise get decent short term rates now can't get any credit at any price.
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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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09-24-2008, 03:28 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Many entities are afraid to lend money at almost any price because the current panic mode is afraid to lend to anyone. This is the classic "credit crunch" at work. Almost no entity is trusted.
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09-24-2008, 05:03 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by JB
Hank Paulson has been saying that companies are having difficulty with short term financing. I was at an investment seminar a few months ago, and the analyst said the same thing. If this is true, why is my money market fund paying 2%? Shouldn't the lack of available credit drive rates up? I asked the same question to the analyst and he didn't have an answer. Bet someone here does.
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A couple of reasons 1) The MM is invested in CP of varying maturities. Only a portion has thus far been re-invested at higher rates. 2) Flight to safety. Funds are likely hoarding cash and investing in short-term treasuries, instead of CP. Short-term treasury yields dropped to zero at the height of the crisis last week.
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09-24-2008, 06:12 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 1,543
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they aren't much higher now, 3 month t bills are .36%
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09-24-2008, 08:49 PM
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#6
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Full time employment: Posting here.
Join Date: Apr 2005
Posts: 524
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Thanks, I am getting a better understanding. One thing that's probably relevant is that the Spread in the Discount Rate is off the chart.
I assume this doesn't affect my MM fund because it's all AA.
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09-24-2008, 10:08 PM
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#7
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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Quote:
Originally Posted by JB
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So far!
Another reason that rates aren't going up is because the Fed is injecting as much money as the Treasury can print. No one's going to pay you 5% for your 2% money when the Fed will make them a better deal.
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