Money Markets Substitute Halting Redemptions
via the always astute Doug Kass, we must point you to this simply unbelievable document . . . from Sentinel Management Group.
That's right, some Money Markets Substitutes -- safe as cash, totally liquid -- are halting redemptions. (2:52 pm: This is NOT a Money Market fund, its a substitute).
Note: there is a big difference between Money Market Funds, and there "enhanced" Money Market Funds -- namely, whether or not they are FDIC guaranteed to $100k. (This one is not insured)
Once again, we see what the reach for yield has wrought . . .
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click for full doc
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UPDATE: August 124, 2007, 2:24pm
Here's the Morningstar and Bloomberg update:
So much for money market substitutes. There have been a number of articles over the years about using short- or ultrashort-term bonds as money market substitutes. Yields on money market funds are typically low so it's understandable that you might want to boost income by moving to ultrashort- or short-term bond funds, which sometimes have a higher yield.
However, the subprime mess may forever dispel investors of that notion. Ultrashort is supposed to be the most conservative, low-risk bond fund around, yet a number of funds are in the red for the trailing four months and even the year. Consider that ultrashort has been about the worst place to be for the past four weeks. Through Friday, the average ultrashort fund is down 0.36%, versus gains of 0.37% for short-term bond funds, 0.37% for intermediate, and 0.16% for long bond funds. Only high-yield, emerging markets, and bank-loan funds have fared worse.
-'Money Market Substitutes' Get Hit by Subprime Woes
And
"Sentinel Management Group Inc., the Illinois-based firm that manages $1.6 billion for clients, said it asked regulators for permission to freeze withdrawals because credit-market turmoil made it impossible to trade.
The firm, based in Northbrook, contacted the Commodity Futures Trading Commission for approval to halt redemptions ``until we can honor them in an orderly fashion,'' according to an Aug. 13 letter to clients.
The CFTC had not granted permission as of this morning, said an assistant to Eric Bloom, Sentinel's president and chief executive officer, who declined to be identified. Bloom didn't return calls for comment.
The firm said it was a victim of panic in among investors caused by the collapse of the subprime-mortgage market."
-Sentinel Management Group Seeks to Halt Redemptions
Sources:
Sentinel Management Group Seeks to Halt Redemptions
Jenny Strasburg and Matthew Leising
Bloomberg, Aug. 14, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W7XECOfjPg&
'Money Market Substitutes' Get Hit by Subprime Woes
Russel Kinnel
Morningstar, 08-13-07
http://news.morningstar.com/articlenet/article.aspx?id=203490&_QSBPA=Y&fsection=Comm3
Tuesday, August 14, 2007 | 10:13 AM | Permalink
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Comments
"Where's that money, you silly stupid old fool? Where's that money? Do you realize what this means? It means bankruptcy and scandal and prison. That's what it means. One of us is going to jail - well, it's not gonna be me."
Posted by: Larry Nusbaum | Aug 14, 2007 10:22:23 AM
That letter sounds like someone using the market to cover an individual screwup. Investors aren't dumping GE at Tyco-level prices. The stock is still trading well above its 200-day moving average, above where it's been sitting for the past two years.
Posted by: Royce | Aug 14, 2007 10:22:23 AM
"trading like junk bonds as panicked investors drop names like General Electric at Tyco-like prices"...is this a joke? Here's the chart for GE stock. Yield is 2.9%, which is scarcely junk-bond-like. I haven't looked at GE debt this morning, but I seriously doubt that it is trading at junk-bond-like levels.
Posted by: david foster | Aug 14, 2007 10:24:14 AM
This is from the section on Sentinel's home page as to why investors should choose Sentinel:
Q: Will your funds be accessible when you need them?
A: Absolutely. Sentinel is prudent in its placement of funds, in order to provide a minimum of risk while maintaining maximum liquidity. All client funds are placed in readily marketable government and corporate securities, a large portion of which are in overnight investments, allowing us to meet client withdrawal needs while maintaining the integrity of our portfolios.
Posted by: Dan | Aug 14, 2007 10:29:16 AM
I'm not sure if this is the reason for the mkt pullback this morning but a story on Bloomberg at 9:48 says 17 Canadian asset backed commercial paper issuers "are seeking back up financing from banks after failing to sell their short term debt, ratings company DBRS said."
Posted by: Peter B | Aug 14, 2007 10:34:24 AM
The mgmt. at Sentinel is very cleverly (and wrongly) using the scare in the markets to protect themselves or (as mentioned above) a larger screw-up.
Fred would love that letter.....
Ciao
MS
Posted by: michael schumacher | Aug 14, 2007 10:39:07 AM
it that's not a warning shot across the bow of market "shillism", then nothing is. Does anyone really think that Sentinel was the only cockroach bitten like this? Jerry Bowers, Kudlow,..... heads up!
Posted by: Stuart | Aug 14, 2007 10:48:04 AM
the market needs to bear down on this. as Dr Evil would say, "c'mon folks, i need the info". if the likes of a Schwab for example has been screwing around w unorthodox investments in its money market accounts, look out below. that $100,000 deposit protection at the banks is gonna look mighty meager.
Posted by: scorpio | Aug 14, 2007 10:57:19 AM
MS,
Fred's out trying to find his bull market. He'll read it when he gets back.
Posted by: Sven | Aug 14, 2007 10:57:51 AM
Wow...you guys beat the market to this story.
Posted by: Steve | Aug 14, 2007 11:03:22 AM
Bloomberg has picked up the story. That should give it legs.
Posted by: kharris | Aug 14, 2007 11:04:10 AM
The Reserve posted a reassuring newsletter about the exposure of their money market funds to CMBS, RMBS, and CDOs. I guess at this point a lot of money market providers are feeling the need to either communicate being with us or against us.
http://ther.com/pdfs/Reserve_Insights_07.pdf
Posted by: dukeb | Aug 14, 2007 11:04:11 AM
Dan, you are right.
See all the news related to Coventree up in Canada...ABCP mkt blowing up (1st time in 12 yrs of existence)
Posted by: Dave | Aug 14, 2007 11:09:01 AM
This is worrisome. I read about this potential money market issue last week, so I called Schwab last Friday. They said there is no exposure to CDO's or subprime in their MM funds (SWVXX). The customer service rep said many people were calling about this. Should I believe what they say? Will this Sentinel issue trigger increased MM fund redemptions at the Schwab's of the world? Will this trigger redemption halts at these firms? Watch out below is right!
Posted by: tom | Aug 14, 2007 11:19:45 AM
ummm..this doesnt look good. Doug Cass stop jumping up and down!
Posted by: UrbanDigs | Aug 14, 2007 11:23:43 AM
article posted..
http://www.reuters.com/article/ousiv/idUSN1334595320070814?src=081407_1039_INVESTING_analysis%3A_hedge_funds
Spectre of Deflation posted this article on another thread without a link. It's so relevant here..
Ciao
MS
Posted by: michael schumacher | Aug 14, 2007 11:28:48 AM
The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc... They view their money as safe and detached from everything that is going on right now in the credit market and stock market. They don't understand those markets and that is why they bought the "safe" money market fund or GIC in the first place. For one of those funds to lose 24%, that would send those investors fears over the moon. One way to shake up the public is to get Mom and Dad on the backs of their kids to answer what the hell is going on. We're there now or damn close and that is when this goes to a sigma 99999999 affair.
Posted by: Stuart | Aug 14, 2007 11:43:00 AM
First, I think they are referring to GE and Tyco corporate bonds, and not stocks.
Second, there is a lot of confusion in the media about Sentinel and exactly what they do, the 'media' being CNBC and BloombergTV.
Barry, you should add an explanation ASAP clarifying the connection to 'money markets' and is this just a junk bond hedge without liquidity for redemptions, or something more specific to money market funds.
As it is now your piece contributes to the confusion.
P.S. you need to segment your blog. its getting to big and unwieldy.
Posted by: Jesse | Aug 14, 2007 11:46:31 AM
here's the link to Coventree news
http://www.reportonbusiness.com/servlet/story/RTGAM.20070814.wrrisk14/BNStory/robNews/home
Posted by: Dave | Aug 14, 2007 11:46:55 AM
Well, the CTFC just told Sentinel to "pack sand"...they will NOT allow them to halt redemptions. THIS IS GREAT NEWS!!
Idiots that fell for 8% money markets deserve to get their fingers burnt....and losses on their "money market".
Isn't it interesting that the VIX and VXO didn't make a new high on this "scary" news?
Kass is out there suggesting this is everyday practice for main street firms...typical for him. Fear is his weapon.
You will look back at this period, like all past pukefests and wonder why you didn't buy quality stocks...mark my words.
Posted by: Fred | Aug 14, 2007 12:01:26 PM
article posted..
http://www.reuters.com/article/ousiv/idUSN1334595320070814?src=081407_1039_INVESTING_analysis%3A_hedge_funds
Spectre of Deflation posted this article on another thread without a link. It's so relevant here..
Ciao
MS
Additional information:
Hedge Fund Firm Sentinel Management Asks to Halt Redemptions
By Jenny Strasburg and Katherine Burton
Aug. 14 (Bloomberg) -- Sentinel Management Group Inc., a Northbrook, Illinois-based hedge-fund manager, has asked regulators for permission to halt investor withdrawals.
The firm contacted the Commodity Futures Trading Commission for approval to halt redemptions ``until we can honor them in an orderly fashion,'' according to an Aug. 13 letter to clients.
The firm managed $1.6 billion as of last month, according to a filing with the U.S. Securities and Exchange Commission.
Eric Bloom, the firm's president and chief executive officer, didn't immediately return a call seeking comment. An assistant who declined to be named said the CFTC hasn't granted the firm's request yet.
To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net .
Last Updated: August 14, 2007 11:21 EDT
Posted by: SPECTRE of Deflation | Aug 14, 2007 12:07:39 PM
Nice try Fred...
CFTC didn't tell Sentinel to 'pack sand'; they simply claim it's not in their authority to grant such a request:
WASHINGTON, Aug 14 (Reuters) - The U.S. Commodity Futures Trading Commission has no authority to grant Sentinel Management Group's request to halt client redemptions, an agency official said on Tuesday.
"The CFTC has no authority in this area," the CFTC official, who asked not to be identified, told Reuters. "This isn't something we do.
"We have no role in whether or not the company does this and whether the client accepts it," the official said.
Looks to me like Sentinel can do whatever they want
Posted by: Pool Shark | Aug 14, 2007 12:13:55 PM
see 'Money Market Substitutes' Get Hit by Subprime Woes @ Morningstar
http://news.morningstar.com/articlenet/article.aspx?id=203490&_QSBPA=Y&fsection=Comm3
Posted by: paul | Aug 14, 2007 12:15:36 PM
Hey, at least it's only money... Just think, at least you don't have to worry about your house value or inflation ("great time to buy" and "core inflation"). Better to be poor with a roof over your- oh sht!
Posted by: lauteus | Aug 14, 2007 12:16:00 PM
Any brainfart who bought an above treasury money market deserves the losses....and losses they will get (if they panic).
VIX is about to turn negative on the day.
I expect a very tradable rally right now.
Posted by: Fred | Aug 14, 2007 12:19:01 PM
