Negative Returns on Money Market Funds
With Gold taking out new levels in Euro terms, here are a few thoughts by Jessie.
Gold and silver had sharp rallies today as the selling going in to the end of quarter and the gold option expiry dissipated and a sharp short squeeze ensued.
Gold hit a new high in euros today on the back of fresh uncertainties in Europe, particularly in Spain.
As you know money market funds are savings vehicles with a fixed unit price that pay dividends, like a savings account. They arose as alternatives to bank deposit accounts because they were able to present higher returns than the regulated banks.
The Banks, and their regulatory friends who have been mostly among the Republicans want the money markets to have a floating price like a stock, opening the possibility for negative returns on savings. Turbo Timmy G. came out today calling for reforms in the money market funds, and a ‘floating price’ for the money market fund.
Et tu Timmy? All day long. The young man is getting ready to leave Washington after the election and take a lucrative trip through the crony capitalist revolving door, and probably into the banking sector.
The increased uncertainty, the chance of negative returns on your savings if the funds are allowed to fluctuate below one dollar per unit, is sure to drive quite a bit of risk adverse money out of the money market funds. And it opens the door to price manipulation and fraud, doing nothing to help promote transparency and confidence.
Eurobowl Crisis Weekend XXVIII
Guest post by Peter Tchir.
The Bull Case
I had turned bearish on the situation in Europe last week, which had worked well until yesterday. I remain bearish, but there is an obvious and possibly realistic path for the bulls.
1) Spain, followed by Italy ask for and receive OMT and ESM support. The terms of which are generous.
2) Spanish bank recap goes ahead.
3) Budgets work, economies show signs of rebounding and markets reach new highs.
That is the bull case in a nutshell, and I had believed in it for awhile, but don’t see anything working out quite smoothly.
Stagflation?
We have been told there is no inflation in Europe, only an imploding economy. Back in the Econ 101 class, we learnt that falling economy with inflation, creates stagflation. With inflation “suddenly” on the rise, let’s see if we need reviewing those Econ 101 books. From Bloomberg.
Euro-area inflation unexpectedly accelerated in September as energy prices rose, even as the single-currency bloc’s economy edged toward a recession. Consumer prices in the 17-nationeuro region increased 2.7 percent from a year earlier after a 2.6 percent gain in August, the European Union’s statistics office in Luxembourg said in a flash estimate today. The median forecast of 40 economists in a Bloomberg News survey was for the rate to fall to 2.4 percent.
Inflation has stayed above the European Central Bank’s target of slightly less than 2 percent for almost two years even as the economy has faltered. Surveys last week showed services and manufacturing output fell to a 39-month low in September. ECB Governing Council member Ewald Nowotny and Executive Board member Benoit Coeure have suggested the Frankfurt-based central bank probably won’t lower interest rates at its next meeting on Oct. 4. (full article here.)
Netanyahu’s Red Line
Guest post by Azizonomics.
Netanyahu wants a red line on nuclear proliferation in the Middle East:
Where exactly should we draw it?
As Justin Raimondo notes:
Here is a nation which refuses to even admit it acquired nukes long ago, and which disdains the Nonproliferation Treaty, making the case for war against a neighbor that has indeed signed the NPT and is abiding by its requirements.
That treaty gives Tehran the right to develop nuclear power. Furthermore, there is zero evidence Iran is embarked on a nuclear weapons program: our own intelligence community tells us they gave that up in 2003 and show no signs of resuming it. Their own religious and political leaders have denounced the possession of nuclear weapons as sinful: the Israelis, on the other hand, haven’t bothered reassuring us they would never use the nuke they won’t admit they have.
In a rational world, Israel would be in the dock, answering for its unwillingness to come out of the nuclear closet and admit what the whole world knows by now.
The West has sent out a message that the only way for unpopular regimes to avoid invasion is to obtain nuclear weapons. North Korea sought and obtained nuclear weapons and their vicious and economically-failed regime has stayed in power. Qaddafi gave up his nuclear ambitions, and was soon deposed by British, French and American airpower. If Iran is seeking a nuclear weapon — and the CIA and Mossad, as well as the IAEA agree they that they are not currently doing so — perhaps the fact that nuclear-armed Israel and the nuclear-armed United States keep threatening non-nuclear Iran with attack has something to do with it?
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