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Papering Over Disaster, Temporarily – Professional Edition

We now have an inkling of how the Treasury will handle the paydown of $185 billion in Treasury CMBs. It will turn what would have been a horrendously bearish period into something less so, but the respite will be temporary. At the very least, it should give the smart money the opportunity to tiptoe out the back door before the crowd stampedes later in the fourth quarter. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

3 Comments

  1. Adam Butler

    Lee,
    Given that the increase in Institutional MMF assets since September 2007 is almost precisely equal to the contraction in CP outstanding, is it safe to say that the ‘cash on the sidelines’ argument the bulls are using to support their calls for higher stock prices is an illusion? My understanding is that CP was/is largely used as a cash management tool for corporate Treasury departments with excess working capital. Cash that would otherwise have been put to work in CP is not cash that is ready to be invested in stocks. Would it have been fair to say in 2007 that $2 trillion in CP was a reason to be bullish of stocks?
    Is CP outstanding included in MZM?
    I guess I am wondering to what degree the assets in IMM funds is ‘high powered’ money that is likely to be put to work in stocks and corporate bonds, or whether this is likely to find a new home in bank deposits or Treasuries given the evaporation of the CP market. Thanks Lee!

  2. Lee Adler

    Generally speaking I would think that MMF assets are largely held for purposes other than stock speculation, although obviously a percentage of it is held for that purpose. Russ Winter did some good work on that in Actionable which he discussed in our last podcast. He compares total MMF assets to total stock market cap. He felt it was too high last March, indicating a bottom, and he feels it is too low now, indicating a bubble and an approaching top.

    The collapse of MMF assets along with collapsing CP would normally correlate with falling stock prices. We’re in LaLa land at the moment. Dangerous. What happens when the music stops? I think we know the answer, and we have an inkling of when, as I discussed in the report.

    Thanks for your comments!

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