The Cash Run Continues

The run for the least risky assets - cash and treasury bills - continues.   Today Putnam announced it is closing a money market fund due to "significant redemption pressure" (see release below).    This demonstrates what I wrote about yesterday and what we lead with on the show.   Institutional investors are scared and are moving to cash.   They are also buying short-term treasury bills as a haven.   People are nervous.

Demand for t-bills is so strong that the Fed issued another $40 billion yesterday.  The New York Fed has also been adding bills to the market to meet demand.    Because demand is so strong, returns have been pushed way down (see chart below, courtesy of bigcharts.com).   With inflation and costs, you are losing money to own a t-bill.   But at least you know the risk, and that's why people are buying them.  The New York Fed has actually issued more short-term debt than post the September 11th attacks.   Shows the severity of what we are dealing with.

A quote from a Dow Jones story today proves the point:

"The risk here is that this kind of news causes investors to flee their money funds or buy T-bills directly," said Carl Lantz, interest rate strategist at Credit Suisse in New York. "In either case, T-bills get very rich," and demand for Treasurys in the repo market rises even more.

Cash is easy to understand.    T-bills have a little mystery to them.    They shouldn't.   You can actually buy treasuries directly from the government at Treasurydirect.com.

So far this story hasn't gotten much attention.   Stocks are more sexy.   But this is the real measure of fear behind the markets.    Money funds and t-bills are considered dull, but understanding what big investors are doing isn't, and thats exactly what the money fund and t-bill market is showing us.

-------------------------------------------------------------------------------------------------------------------------------

PUTNAM ANNOUNCES FUND CLOSING AND DISTRIBUTION OF ASSETS FOR PUTNAM PRIME MONEY MARKET FUND (INSTITUTIONAL)

BOSTON, Massachusetts (September 18, 2008) -- The Board of Trustees of the Putnam Funds announced today that it has voted to close the institutional Putnam Prime Money Market Fund, effective as of 5:00 p.m.
on September 17, 2008, and distribute all fund assets.  Putnam Prime Money Market Fund is offered to institutional clients with a minimum initial investment of $10 million.

The Trustees' action was not related to the portfolio's credit quality, but was instead a reaction to marketwide liquidity issues.  The fund, like Putnam's other money market funds, has no exposure to securities of Lehman Brothers, Washington Mutual or AIG at the parent-company level. The fund's net asset value calculated on September 16, 2008 was $1.00 per share.  On September 17, the fund experienced significant redemption pressure. Serious constraints on liquidity in money market instruments created the risk that in order to process redemptions, the fund would realize losses in selling its portfolio securities. In the face of these challenges, the Trustees determined to close the fund to ensure equitable treatment of all fund shareholders. Putnam and the Trustees believe that this action is in the best interests of shareholders because it ensures an orderly distribution of assets in light of the current unusual market conditions and treats all shareholders in an equitable manner.

Putnam and the Trustees are working to develop a detailed plan of distribution, with the goal of providing shareholders with the opportunity to receive distributions as expeditiously as possible, depending on market conditions.  The Fund intends to provide additional information shortly regarding the plan as part of ongoing communications to shareholders.

The action that the Board has taken is specific to the institutional Putnam Prime Money Market Fund in response to that fund's specific circumstances.

This decision does not relate to other Putnam funds, including the retail Putnam Money Market Fund and Putnam VT Money Market Fund, or to stable value funds managed by Putnam for defined contribution clients.

About Putnam
Founded in 1937, Putnam Investments is one of the nation's oldest and largest money management firms.  As of August 31, 2008, Putnam managed
$163 billion in assets, of which $96 billion is for mutual fund investors and $67 billion is for institutional accounts.  Putnam has offices in Boston, London and Tokyo.  For more information, go to www.putnam.com.