| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Wall of US cash still looking to find a home |
FT.com - Dec. 2009 - By Aline van Duyn
The financial market panic of 2008 was characterised by a huge stampede into cash. Indeed, the surge into cash-like investments such as short-dated US Treasury bills was so strong that investors were content to lose money on these holdings - which essentially paid negative interest rates for a while.
Using US money market mutual funds as a proxy for demand for cash, this trend continued until March this year, when money fund balances peaked at $3,760bn. This peak, of course, coincided with the start of the rally in risky assets, which has lifted everything from equities to corporate bonds.
Since then, $560bn has flowed out of these money market funds, according to analysis by JPMorgan. The balances are still quite high. Indeed, despite the outflows, there is still $1,000bn more in money market funds than in early 2007.
It is not just such measures of cash that show balances to be high.
Data released by the Federal Reserve show that private cash holdings by households and companies as a percentage of nominal US GDP is just shy of 72 per cent, or about $10,120bn, as of the second quarter of 2009. The US household sector currently holds about $7,760bn in liquid assets. These cash balances are higher than the previous peak in the 1980s.
With returns on money market funds still low - the interest paid has barely turned positive - there are plenty of market watchers who expect the money to keep moving out of cash and prop up buying of stocks, corporate bonds and other assets with higher returns.
"The last time we had a big money mountain was in the 1980s," says James Paulsen, chief investment strategist at Wells Capital Management. "For the next 20 years, a little bit more went into economic activity and some went into stocks and bonds. This same pattern will be repeated next year and for a number of years to come."
Mr Paulsen says this is one reason to be bullish on stocks. Indeed, the recovery in share prices since their March lows has occurred even though the volumes traded on exchanges have been low. "Volumes have never really gotten that high, yet stocks have moved up 60-65 per cent from the lows. This rally is more about people finally quitting selling than people buying." He says a return to job creation in the US would be catalyst for a switch out of cash and into stocks next year.
The speed of any future moves out of cash is subject to debate, however. So is the exact nature of investments once cash has been taken out. This year US retail investors have favoured corporate bonds and emerging market equities as places to put money taken out of cash funds.
Indeed, as well as pulling some money out of cash, retail investors have been pulling money out of US equities, according to mutual fund flows data. For many strategists, the shifts suggest that investors are disillusioned with the growth prospects for US equities - which have just notched up a decade of losses - and those seeking growth are placing money in equity markets in countries such as China and Brazil instead. By some measures, more money has been invested in such emerging market equities than ever before.
Even so, some analysts argue that there are more reasons for investors to keep money invested in cash funds than before.
In the first place, investors - whether institutional buyers, retail investors or corporate treasurers - seeking liquid, cash-like investments have a lot less to choose from than before.
One reason investors stampeded into cash was that short-term debt, such as that from Lehman Brothers, lost all its value after the default last year. Other short-term investments that were once regarded as cash-like, lost their appeal during the crisis, when many proved to be illiquid. As a result, the supply of asset-backed commercial paper and short-dated bank debt, for example, has plunged.
"Before the crisis began in 2007, many liquidityfocused investors were heavily engaged in enhanced cash or ultra-short total return strategies that were supposed to provide better returns without compromising liquidity," a report by JPMorgan says. "The poor performance of these strategies in the crisis lingers with many of these investors, suggesting they're unlikely to try it again."
Companies taking money out of cash funds may not reinvest it in higher-yielding assets, either. Instead, they may use the money to buy back their own stocks. Also, there are alternative places for investors to place their cash. One of the consequences of the crisis last year was that banks sought to attract more deposits. Indeed, US banks have gained $800bn in deposits - partly because the US government is now insuring up to $250,000 per depositor per bank - since the collapse of Lehman Brothers last year.
Some money is likely to switch out, however. The JPMorgan report says that institutional money fund balances - which represent the bulk of such funds - could drop by 10 per cent and retail balances could fall 20 per cent over the next year. This would add up to $400bn moving out of cash.
"We suspect nearly all of the institutional decline would be split between shareholder use and bank deposits. This leaves around $180bn to $200bn, mostly from retail shares, to be split between banks and the markets."
Whether Americans again decide to put their money into US stocks in 2010 - rather than corporate bonds or emerging market equities - will be watched by bulls and bears alike.
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