Ok, everyone, time to go Treasury-only MMFs

Discussion of the Cash portion of the Permanent Portfolio

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jhogue
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Fri Apr 24, 2020 2:51 pm

I suppose it is understandable that Fidelity might suddenly close FDLXX to new investors. They are worried they can't handle a flood of too much new money chasing too few Treasurys -- which may also add downward pressure on the fund's yield. That could be construed to be in the interests of the pre-existing investors.

The sudden addition of short-dated TIPS to the portfolio and the publication of a revised expense schedule-- the one coming right after the other-- is beginning to look fishy to me. I think they are afraid of being caught carrying a ludicrously high expense money market fund sporting a potentially negative interest rate.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by Tortoise » Fri Apr 24, 2020 3:23 pm

jhogue wrote:
Fri Apr 24, 2020 2:51 pm
I suppose it is understandable that Fidelity might suddenly close FDLXX to new investors. They are worried they can't handle a flood of too much new money chasing too few Treasurys -- which may also add downward pressure on the fund's yield.
My understanding is that the main reason why companies sometimes close their Treasury MMFs to new investors is because they don’t want to dilute the fund’s existing (higher-yielding) T-bills with newly purchased (lower-yielding) T-bills.

In other words, I think the company is concerned about new investors’ effect on its own fund, not on their effect on overall Treasury market supply and demand (“too much new money chasing too few Treasurys”).
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jhogue
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sat Apr 25, 2020 3:44 pm

Sorry that my choice of words was not clear. I did not mean to imply that Fidelity believes it could alter the price or yield of the Treasury secondary market by its actions.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by sophie » Sun Apr 26, 2020 8:43 am

I noticed the same thing about the change in ER.

I actually applaud Fidelity for this announcement. It looks like they are going to great lengths to keep the yield from going negative, including taking a haircut on the expenses. And, I would rather see them add a small slice of TIPS than make like Vanguard and start resorting to repurchase agreements.
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jhogue
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sun Apr 26, 2020 10:15 am

Sophie,
I am presently of two minds regarding the management of FDLXX. Some of their actions appear to be protective of the interests of the pre-existing shareholders- like closing the fund to new investors in the midst of the recent panic-driven flight to quality.

On the other hand, FDLXX’s managers are charging some of the highest fees in the industry. That in turn generates a whopping $21 million annually (based on their roughly $5 billion in assets in FDLXX alone). SPAXX is even larger and still more lucrative. Doesn’t seem like much of a “haircut” to me.

Given the enormous size of their money market assets under management Fidelity should be charging the lowest expense ratio in the industry, not the highest. By law, Fidelity is required to manage the fund in the interest of its investors—who are also shareholders. Are they doing that?

I hope your sentiments are right and mine are wrong.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 5:35 am

actually if fidelity was not supporting the treasury money markets they would be negative . fzfxx shows without being propped up it would be at minus .07%
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Mon Apr 27, 2020 7:13 am

According to Fidelity's own website, FZFXX also has a gross expense ratio of 0.42% and current assets under management of $28 billion. That yields the firm about $118 million in profits annually. The question is, do you think the fund's shareholders are well-served by its present fee structure in exchange for trading relatively simple securities that have no principal risk?

By the way, as of 3/31/2020, FZFXX contained 66.49% repos, which are not protected by FDIC but do have a systemic risk that Permanent Portfolio investors in T-bills are trying to avoid.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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mathjak107
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 11:58 am

jhogue wrote:
Mon Apr 27, 2020 7:13 am
According to Fidelity's own website, FZFXX also has a gross expense ratio of 0.42% and current assets under management of $28 billion. That yields the firm about $118 million in profits annually. The question is, do you think the fund's shareholders are well-served by its present fee structure in exchange for trading relatively simple securities that have no principal risk?

By the way, as of 3/31/2020, FZFXX contained 66.49% repos, which are not protected by FDIC but do have a systemic risk that Permanent Portfolio investors in T-bills are trying to avoid.
Yes ,,, don’t forget 3 and 6 month t bills had turned negative ...the funds were kept positive
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Mon Apr 27, 2020 2:51 pm

mathjak,

I don't think that you substantively addressed my question in my previous post.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 3:43 pm

I have no problem with fidelity and their expenses on the cash ....I don’t hold much cash in a money market and I like the convince of having everything centralized ...I tend to use cash like etfs like shv or bil.

The day I have to worry about a fraction of a point on cash more or less is the day I have to review my portfolio strategy ....when it comes to cash I go with what is easiest to use
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Tue Apr 28, 2020 7:10 am

mathjak,

What you just posted here is inconsistent with what you said in another thread three weeks ago:

“Re: How do you invest the Cash portion?
• Quote
Post by mathjak107 » Sat Apr 04, 2020 4:55 am
we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all .. “

Holding $1.5 million in money market funds, even in the short term, seems reason enough to “worry about a fraction of a point on cash.”
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Tue Apr 28, 2020 3:56 pm

Most of that cash has been reinvested since then .....both in the pp on the dips and my other models...cash is a fraction of what it was ..

The bond funds stabilized and stopped plunging and I was able to rebuy less than I sold pocketing the difference.

. I also took advantage of a good deal citi bank had ...we got 1100 bucks for opening an account for 90 days plus 1.50% interest..
I got 700 for 50k in an account in my name , 15k in an account in my wife’s name got 300 and they gave me 100 bucks for referring my wife....

Crazy deal .. I think they still have it going ...plus if anyone says someone with an account does it they give them a hundred dollar referral bonus ....someone on another forum mentioned my name when they did it and I got 100 bucks
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