​ Goldilocks of Cash: Money Funds Perfectly Positioned in Current Market. The flood of new assets into money market mutual funds has continued in 2008, which beg the questions: Why? And, where is it coming from? The thought occurred to us that money funds occupy the "​Goldilocks" space in the cash maturity spectrum -- not too short and not too long. Repurchase agreements, which are primarily overnight, are a bad place to be when the Fed lowers rates since your rate drops almost immediately. And longer-​maturity "​cash" options have been savaged by exposure to asset-​backed and mortage sectors. The implosion of the enhanced cash, ultra-​short bond, and bank loan sectors has made the option of going out longer than a month relatively dangerous. Money funds also occupy the "​Goldilocks" position on the quality scale -- Treasuries are leaving investors much "​too cold" with ridiculously low yields, and direct investments are much "​too hot", particularly under duress sectors like auction rate securities. Diversified, high quality money funds, which have a maturity profile of 34 days, allow institutional investors the safety, liquidity and the ability to delay the impact of lower rates for a period that seems "​just right".

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