Talk about unintended consequences. Did the debt ceiling debate cause a bank run?
Back in late-May, when our 3EZ FACTOR system told us to get out of stocks, my employees and I (and any customers following this system formerly known as our Six-Number System) sold our stock index funds and moved money into normal money markets.
Shortly thereafter, I started getting nervous about what was contained in those money markets: European bank debt. The solution was simple: Buy T-bills.
But the Treasury had its own problems: the debt ceiling. Once again, politicians — just like they did with TARP and the stimulus — said the scariest things possible to get their way. It seemed as if the strategy was that, the scarier the politician sounded, the more likely the public would support their position. You had both sides creating total panic!
Because yields are so low, you’re not giving up that much to move from out of an interest bearing account for a few days. So I decided to move my money into a checking account. I ran into a problem because my nest egg was in a retirement plan, there was no place to hide. The rep at Fidelity told us we could not put our money in “cash”. It had to be invested in something.
I chronicled the situation in my blog post titled “No Place To Hide”.
The thing is, there was someplace to hide for those investors with less restrictions than what we faced. And I think that may be a major contributor to what’s going on.
I haven’t seen the data yet, but my guess is that there’s been a massive bank run. People have fled money markets; they abandoned the T-bill market. And they put it into bank checking accounts, where you can get your money the next day.
We’re seeing the effect of it in this story about BNY Mellon and in the story I tweeted about earlier today.
What will be the net effect of all this? I don’t know. We’re in the uncharted territory where rates are so low that investors are distinguishing between the safety level of a demand deposit (checking account) and a time deposit (CD). I can’t remember when different types of deposits at the same institution were questionable.
That’s why I’m glad we’re on the sidelines.
– Don
P.S. – I still have that nest egg money in Treasury money markets.
