Showing posts with label money market. Show all posts
Showing posts with label money market. Show all posts

Tuesday, April 21, 2015

Impact of New Money Market Rules

Securities & Exchange Commission – Passed New Rules 

When money became a product, the money market became an element for the financial market for possessions for the purpose of lending, in short term borrowing, buying and selling with original maturities for a year or less and trading in money market could be done over the counter.

Securities and Exchange Commission – SEC had passed some new rules which governed money market fund in mid-2014 and these rules were designed to contest the probable problems on liquidity if the economy would envisage a financial meltdown like the 2008-2009. Usually the money market fund is where several investors tend to invest their funds and the shares of the funds have a constant $1 per share value and there was instant liquidity.

 According to the new rules there is some change to these attributes for some money market funds. Some money market funds will be having floating net asset value – NAV when the new rules are applicable and these funds will not be priced at the prevailing $1 per share. This is turn will have an impact on the institutional municipal money market funds as well as institutional prime/general purpose money funds only while retail money market funds will not be affected by this rule.

Two Kinds of Liquidity Fee

The new rule is for two kinds of liquidity fee which could levy rigid fees on redemptions especially those conventionally low return vehicles and if the weekly liquid assets of money market funds tend to fall below 30% of the total fund’s assets, the board of directors connected with the funds could impose a 2% fee on redemption of funds.

Should the money market fund’s weekly liquid resources tend to fall below 10% of the total assets of the fund, then the redemptions could be subject to a 1% redemption fee if the board of directors vote otherwise. This new rule is then applicable to both the institutional as well as retail municipal and prime/general purpose money market funds.

If the money market fund’s liquid assets fall below 30% on the whole assets, the funds’ board of directors are permitted to vote on whether to restrict all fund redemption for 10 days and agreed that money market funds could be used for their low investment risk and liquidity, the burden of redemption could be difficult for several investors.

Vanguard’s Ultra Short Term Bond Fund 

After the announcement of the new rules, some new short term bond mutual funds have come up which include Vanguard’s Ultra Short-Term Bond Fund – VUBFX, but according to Vanguard, the launch was not connected to new money market fund rules. Higher yield than money market funds are offered in short term bond funds though they also have additional market risk depending on their underlying holdings.

The average ultra-short term bond funds, according to Morningstar Inc. – MORN, lost 7.89% in 2008 and financial advisors could be wise in reminding clients intending to seek more yields on the potential risks of presuming that these funds could be a substitute for money market funds. In an effort in preventing a collapse of financial system in case of another economic meltdown, as the financial crisis which occurred in 2008-2009, the SEC have approved several changes in the rules that govern money market funds.

While some will have redemption fees levied on shareholders in some cases and others will see their NAV enabled to fluctuate from the traditional stable $1 per share, these changes will compel investors as well as financial advisors to reconsider how to use the money market funds while at the same time look for other alternatives.

Friday, May 4, 2012

Dodd-Frank: many consequences extraterritorial

This is easily understood is stated clearly and concisely. This is not the case of Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted by President Obama July 21, 2010.

Along more than 2300 pages, the text aims to be a major reform of U.S. financial markets right - just like those that followed the 1929 crisis - by addressing all the issues identified in the United States during the financial crisis:

Saturday, April 28, 2012

The NSFR, real questioning of the role of the bank?

In February 2011, Patrick Artus, chief economist at Natixis, took issue with the current definition of NSFR ("Net Stable Funding Ratio") by calling it "absurd ratio."

It is also far from being alone in the challenge. Indeed, while this ratio is designed to ensure stable liquidity of financial institutions, number of players in the banking question its "calibration" current, likely in the traditional role of processing devoted to banks.

Friday, April 27, 2012

Media and social networks: moving from communication to influence

Today, any insurance company questions the use of social media strategy for digital. Analysis of different positions and opportunities.

In the context of growing participatory media - blogs, social networks and personal professional, participatory media, microblogging, etc. -, the challenge of these areas of expression is well established for business: the opinions expressed therein are considered by consumers as more influential than advertising or official sites.

Islamic finance, inventory and outlook

According to Bloomberg, the bond sharia (sukuk) in the Persian Gulf reached a record in four years, to $ 7.3 billion, an increase of 62% over one year.

If the development of Islamic finance in the Middle East explodes, with assets that will reach $ 990 billion in 2015 against 416 billion in 2010, what about Europe and especially in France? The Old Continent can take advantage of this growing source of funding? And what are the opportunities in terms of investment products for Western banks?

Thursday, April 12, 2012

Insurers: Find a model of partnership with the profession of agent to better meet the challenges of tomorrow

For many companies, the network of general agents is the main vector distribution. Historically, the General Agent was virtually the only point of contact with customers, prospecting the claims.

The General Agents - unlike employees of the company - are entrepreneurs, who hold a portfolio of contracts and therefore a customer. For twenty years, a number of fundamental context of the distribution of insurance have changed: the appearance and growth of the use of "new" channels (internet, mobile ...), changes in market share (MSI , banks ...), coming into play of new distributors (supermarkets, banks ...).

Monday, January 4, 2010

Will BRIC Nations perform well in 2010?

Russia topped the table of Countries whose stock Indices performed well in 2009. It is followed by Brazil and it is followed by India and China respectively. Russian Stock Index, Russian Trading System(RTS) appreciated by 112 percent in 2009. Brazil’s Stock Index Bovespa, appreciated by 83 percent. The Indian Stock Index Bse Sensex appreciated by 81 percent followed by China’s Shanghai Index (SSEC) by 80 percent.

What we have to take note is, China’ Index has been trading well below its all time high of 6124 and it is currently trading around 3300 level. India’s Sensex is trading around 17500, well below it all time high of 21000. Brazil Bovespa is trading around 68000, well below its all time high of 74000. Likewise, Russia’s RTS is trading around 1400, well below its high below 2400.
It is clearly visible that all these Indices are trading well below their 2008 highs indicating, that they haven’t actually grown. What they have done is, they have pared some losses. Our expectation is, will these countries stock Indices perform well in 2010 also. If so, will they cross their all time highs.

Fundamentally speaking, the companies in these countries have performed better in 2009 than 2008. But they have not performed as much as they performed for the last three years which indicates, the growth in these Stock Indices are unlikely in 2010. And also, the PE ratios of these indices are in higher side when compared to 2008.

Technically speaking, no bear market would bottom out in one year. It will take more than two years to bottom out. So, 2010 would be year of downtrends in all markets. So, 2010 would be as good as 2009 for the BRIC nations. If markets come in this year, then these nations could perform negatively this year.

Don’t be complacent in holding Investments in these countries.

Friday, January 1, 2010

Mutual Funds or Stocks?

Many Investors have doubts about whether to invest in stocks directly or in Mutual funds. If we can analyze the performance of the Mutual during the Bull Markets and Bear Markets, it would give a clear answer about it.

The present bull market started around 2003 and ended in 2008. The Mutual funds performed well during that period but still their performance lagged behind the performance of Stock Indices. In India, Bombay Stock Exchange Index Sensex appreciated by seven times. But no fund appreciated by seven times in this time. If we take into consideration some well performed sectors like, Reality, Power and Infra, the performance of the funds is far more less, which clearly indicates, Mutual funds have not performed extraordinarily. They have performed as an ordinary investors do.

Had an Investor invested directly in stocks, he would have multiplied his money manifold. So, Mutual fund Managers are not smarter than us. I prefer investing in Stocks directly instead of Mutual funds.

But investing directly in stocks do have some risks. Had anyone invested in Hindustan Unilever in Bse or General Motors in USA, he would have not seen his investment appreciate far the last five years. So, picking the right sector and right stock is more important in investing. Any secular bull market will sustain for five years to ten years. Always hold your investments till the bull market is over. Don’t shuffle your stocks in your portfolio frequently.

If one can follow the rules propounded here, then one can prefer stocks over Mutual funds.

Which one do you prefer?

Tuesday, December 29, 2009

Can we see revival of American Economy during Obama’s Presidency?

Ever Since, Mr.Obama took over the presidency of USA, the US Stock Markets saw a deep correction followed by sharp rally. But it is well below the highs of 2007. The US Stock Market Index Dow Jones Index made a high around 15000, in 2007. But it is trading around 10,500 now.

The Economy is gauged by the stock Market Indices in any country. So, if we want to know the future state of the Economy, study of Stock Indices would reveal the real picture. So, if Stock Indices behave well during his Presidency, than the Economy is going to perform well.

The Dow Jones made a high of 15000 in 2007. If the US economy performs well in his tenure, then Dow is going to move above 15000. Is it possible for Dow to move above this level? If so, then he will be recorded as one of the best performed President in USA history.

Let me examine the possibility in detail. Stock Markets behave in cycles. If you see a five rally then it will be followed by some period of correction. Normally, bearish periods are more in time than bullish periods, which means, Dow Jones has to remain in bearish mode for another 5 years.

Since Obama’s term will end in another 3 years, the chances are less for the Dow Jones to move above 15000 which in turn unlikely for the US economy to grow in the next three years.

If this happens and if Obama doesn’t get a second term, then he may go down in the history as an unpopular President of USA.