Time for Investors to Duck and Cover?

The canary in the financial coal mine is beginning to choke.

Today the SEC announced that it is tightening the noose around investors.  The latest to come out of the SEC is a significant piece of news to anyone who has a 401(k), and especially for those who rely on money market funds to safely park their money. 

The 2008 financial crisis saw some money funds the subject of runs, especially by institutional investors who are capable of moving large blocks of money with the push of a button.  Since then, there has been an ongoing debate on what steps, if any, to take to prevent such a run in the future.  The creation of capital controls is nothing new, and to some extent they have existed in money market funds for a number of years. 

Currently on the table are two distinct proposals.  The first is directed at institutional investors' ability to withdraw money during a time of financial crisis.  The second proposal would grant fund boards that oversee money funds to impose significant exit fees on investors during time of financial stress.  The effect of either or both proposals would be to lock investor money in place.  All of this is a bit worrisome, and more so in light of financial waves battering the financial industry around the globe. 

Outright lies and denials by the Central "Banksters" in Cyprus was just the beginning.  Discussions of "bail-ins" for banks are now happening here in the U.S.  Assets of many large banks are overwhelmed by the risks they have ingested through hedge funds.  MF Global and its criminal commingling of client assets with investment capital has been left unprosecuted, and in fact openly legitimized by the SEC and by the courts.  All this is mentioned to simply point out that money funds were considered a safe harbor.

The cynical may say this is simply an attempt to force money into the market.  Perhaps this is true, but one should consider that money funds now typically provide returns that often are no greater than their fees to hold your money.  They are certainly not keeping pace with inflation.  CDs, saving accounts, and money market funds are turning into an expensive place to hide your money, but now with the added burden of less liquidity and diminished control over your own property.

One has to wonder if these capital controls are actually going to cause exactly what they are trying to prevent: significant flight of money out from these no longer so liquid investment vehicles and into cash, precious metals, or property.

If one is an investor, maybe now is the time to go long on home safes.