The “Money Wall” worries about $ 7 trillion to worry about the market as soon as the Federal Reserve Discounts start

This may not be an era in which the Americans fainted in the material currency that gives their governorates, but we are steeped in the suspended criticism within the accounts that were Establishing an attractive yield Thanks to the high interest rate in the Federal Reserve to Combat inflation. There is a record amount of cash money in the money market funds, about $ 7.6 trillion, According to Crane data.

But as The federal reserve is preparing to cut prices For the first time in the year, perhaps up to 50 basis points-a shift in politics, over time, reducing the returns on investment to cash free of risk- The market attention has shifted To whether this money will be in a state of transportation. On the most extreme, the so-called “Wall Of Cash” theory was exposed in Wall Street-which claims that all these money that can create its stock market collection-several times since it was presented.

At least, it is a big moment of change in the Federal Reserve Policy. the Latest job market data Emphasizing increasing concerns about the labor market in the wrong direction and the need for the central bank to move sooner and not later before unemployment mutations. At the same time, and Latest inflation dataAlthough it is far from the presence of price pressures, all of which are all over the economy, it was not suggested that the Federal Reserve be exhausted At least 25 basis basis point points next week.

“The salary data” is escalating if the prices are reduced. “

Watching with most market experts and economists, she said that The pace of these cuts will remain based on data, as the Federal Reserve monitors the labor and inflation market, and runs its double mandate for full employment and price stability. But she added to Podcast of ETF EDGE When the Federal Reserve begins to reduce prices, approximately $ 7 trillion “sitting in the money market boxes” will gradually flow to more assets on risks, including stocks and bonds, as savings rates become less attractive.

Certainly, more joint investment fund companies will chase these assets on the brink of the abyss A major decision from the Securities and Stock Exchange Committee Which can allow each asset management company to provide an ETF sharing category of its money. Antonovich noted that there are 70 requests with SEC for exempt relief and ICI, the main joint box industry trade group, working with hundreds of box shepherds to prepare to add ETF shares if SEC says “Go”.

Although all of this may be true, Peter Crane, head of the research fund research company, has heard all of this before, at least when it comes to federal reserve and money boxes, and he has a simple response: the funds of the money fund continue only, and the only times in modern history when they retreated from what is to what is when the rates are in zero during periods of economic nodes.

““The rates are important but much less than most people believe,” said Crane.

Indeed, in the history of the 52 -year -old money market funds, the assets did not decrease until after a Dotcom’s bust and the financial crisis, and the periods in which severe economic stress led to rocky bottom rates, “below the cycle of the arrogant rate to zero,” he said.

If things become bad enough in the economy that the Federal Reserve must reduce this sooner and not later, this is not exactly a sign of a market that is likely that investors are excessively aggressive with their risk file, too.

“A dream about Wall Street,” said Crane. “It makes a good point of discussion, but 7 trillion dollars go anywhere only.”

There was also a transformation over time in the use of money market funds, with what was often a retail investor phenomenon now the majority of institutional funds and companies – approximately 60 % of the market, according to Crane data. “They do not move, whatever the matter,” he said. “They do not go to the stock market.”

This is not that the financial fund researchers denied that low prices are important, or that some of the assets of the money funds may already move to higher return areas and a rise in the market-it believes that this may be 10 % of 7 trillion dollars, although it adds that there is no accurate data to rely on it for such estimate.

But when you think about nearly $ 20 trillion, Americans leave in banking deposits, giving their money to Wall Street mainly to go to more money while not earning money themselves, the point of 25 points in the current interest rate environment does not earn the money exactly a dead option.

“It is about more average average,” he said. “A quarter of a point for cash investors, and he looks at several years when the prices were zero and they were used to getting something?” He asked.

While investors may get the “reactivation” of the return, at what level will this happen? Currently, an average financial box investors earn 4.3 % annually.

Crane says that even if the rates decrease to 3 %, there is no guarantee, as 100 basis points of discounts in the prices of the Federal Reserve Council are seen by many as an aggressive ban in a significant contraction in the economy, a lot of money will remain in its position, especially when you think about what banks pay to maintain cash, perhaps at best 0.5 %. “Banking deposits are returned under the initial payment,” he said.

For this reason, Crane believes that it will take a repetition of the Federal Reserve History for a large amount of this money to move. “Most likely, if you go to scratch, there will be erosion at the base,” he said. The Federal Reserve reduced prices a year ago, before it stopped temporarily due to fears about inflation, and funds have risen to the top since then. “If we go to 3.80 %, 3.85 %, will anyone care?” Crane said.

In addition, although the total balance in the money funds market is huge, individual balances tend to be relatively small. If the investor has $ 5,000 in the money market fund and he gets 1 %, 2 %, or less, Crane says there are better things to think about as much money. “I spent more money thinking about the problem, you earn. Nothing is worth doing for less than 1 % or a hundred dollars,” he added.

At a time when the bond market was volatile, there is a greater risk of fixed income and in the treasury market than investors expect, which makes a proposal for more flowers for investors.

Portfolio options with the Federal Reserve turned into a decrease in prices

One thing is certain: the money funds market will not move next week following the decision of the Federal Reserve to reduce prices. Unlike the treasury bills, the funds have money for 30 days, and thus assuming the discounts in the federal reserve next Wednesday at the FOMC meeting, the cabinet begins to decrease but the money is a month to move completely because it is still the highest return. Old securities. At least in the short term, if the Federal Reserve reveals a jumbo reduction, Crane expects the capital market assets to rise for the same comparative reason.

“But in the long run, it is negative,” he said. “In the end, less attention is created compared to other investments.”

But the fact that the market keeps it Set Also, the assets of money boxes reach record levels that do not indicate that the game is one as the shares of the money markets are hurt.

If you are among the group of investors that have built a big balance than you need to necessarily in monetary anti -hostile accounts, there are options, according to Todd Sohn, an ETF technician and strategic expert to manage strategy assets. But he stressed that all of this depends on enduring risk, as well as tax factors.

Sohn said: “Once the prices of the money market fund begins to overcome an area of ​​3 % less, the post -tax return is not great.” But although this may not be perfect for the proceeds that can be created, “may be risk and just want to keep it there,” he added.

For investors who determine that moving from money money is justified, the first step to consider is to move to the cabinet curve, for example, the investment funds circulated in the treasury for a period ranging from two to five years. Sohn admits that in a time larger fluctuations in the steady income market, it means that investors face more risks and more fluctuations, but there are no credit risks. “At least you will gain the return in addition to estimating the price,” he said.

To manage any surprises in the fixed income market, investors can use the so -called a “Bond” ETF.

“There is a handful of investment funds circulating abroad that would surrender the treasury in order to be shown through the curve,” he said. He added: “The balance of the ladder can maintain the decrease in fluctuations instead of adding a lot of time,” a factor that has burned many investors in recent years.

Amid the fluctuations of the last bond market, many investors in the ETF market It is attracted towards the shortest treasury bonds for everyone.

Investors can also think about adding stock property, or completely unrelated assets to the stock market or bonds, but Sohn warns that any investor has already a varied portfolio that is unlikely to need more exposure to grow It represents approximately 40 % of the American stock market.

“But you may see holes in your stock cover,” Sun said. He added: “Evaluating your wallet to see if you need small, medium or international exposes. There are many low cost options for this.”

You can see Full “Etf Edge” offer for this week To learn more about some of the ways in which investors acquire a new exposure to the stock market and investments that are generated by income through the traded investment boxes and active traded investment boxes that use stock options strategies.

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