Who Is The biggest Subprime Investor?

Ever since the Subprime crises started, I’ve been curious as to whether there was one entity or institution that had the biggest exposure to Subprime slime.

I found the answer as I was reading Bloomberg’s article “SEC to Rework Rules After Funds Struggled with Subprime Prices.” A couple paragraphs caught my attention:

“Within the $12.1 trillion U.S. mutual-fund industry, the biggest subprime-debt investors are taxable bond and money-market funds, which managed a combined $3.93 trillion of assets as of November, according to the Investment Company Institute.

Money funds, which try to maintain a stable net asset value of $1 per share, are considered among the safest investments because they only buy highly rated debt with short maturities. Falling below a $1 a share can shake investor confidence and spur withdrawals.”

Surprised? Read that first sentence again! If you are one of those investors who is chasing after the highest money market yield, think again. Higher yields equal higher risk. The Subprime/credit crisis is far from being over and, as I said in a previous post, I strongly suggest that you move your idle cash to a money market account consisting of U.S. treasuries only. All major brokerage firms have these, although some may have high minimum requirements.

Market Commentary: Yesterday’s rebound was a euphoric reaction to another potential sharp interest cut by the Fed on Wednesday. The markets ignored poor economic data and earnings and focused on nothing but lower rates. At this time, I would not read too much into this reversal from Friday. Caution is of the utmost importance.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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