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Record Cash in Money Funds

Thursday, December 14, 2006 | 06:49 AM

in Data Analysis | Economy | Psychology/Sentiment

The WSJ noted that, according to the Money Fund Report newsletter, "Investors to money-market funds added $21.26 billion in the week ended Tuesday, bringing total net assets to a record $2.333 trillion. The previous record had stood since Dec. 10, 2002."

About 86% of the money came from Institutional investors -- $18.32 billion; individual investors contributed $2.94 billion.

This sort of data is always tough to draw conclusions from: We know there is a record amount of cash in Money Markets, but the tough question is why?

I can think of many reasons -- none of which have any quantitative support:

• Hugely profitable, cash rich corporate earnings gotta sit somewhere;

• Skittish investors don't believe the rally, leaving money "safe;"

• Big bonus pools/high earners cash not put to work yet;

• The ongoing option backdating scandal continues to plague investor confidence;

• There's always been huge cash on the sidelines, even thru the 1990's bull market;

iMoneynet, the source of this data, expects to see this cash hoard continue to rise into 2007.

Is this pile of cash significant? That is an interesting question, and one I simply do not know the answer to . . .

Sources:
$200 BILLION GROWTH IN INSTITUTIONAL MMFs POSSIBLE IN 2007
iMoneynet, December 1, 2006
http://www.imoneynet.com/articles/articlesFolder/Retail1616/Retail1616.pdf

Money-Fund Assets Hit Record
WSJ, December 14, 2006; Page B8
http://online.wsj.com/article/SB116605609381249620.html

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Comments

Well, I don't really advocate polls for this site, but, in the way of a poll, let me say that I pulled out most of my money in my stock fund 401(k) and put it into a 491(k) money market shortly before the election. I believed that there had been a lot of artificial inflation of the economy's statistics. So I missed out on the November rally. I'm still sceptical, but what can I say? Most people I know are extremely worried about their incomes. But the statistics and measurements are not reflecting this.

Posted by: Sue | Dec 14, 2006 7:35:54 AM

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