Bloomberg explains, "Why This JPMorgan Strategist Says It's OK to Hoard Cash." They write, "It's a common motto among investors: Cash is trash. But Oksana Aronov, head of market strategy, alternative fixed income at J.P. Morgan Asset Management, says not so fast." She tells this week's episode of Bloomberg's 'What Goes Up' podcast, "I've been hearing about investors losing money sitting in cash, and that cash is trash for as long as I’ve been in this industry. But the reality is that if you have been in cash for the last five years, you've essentially outperformed the Bloomberg Barclays aggregate index year to date, over one year, three years, and, depending on the day, yes, even five years."
The piece adds, "Aronov says that risks are currently skewed to the downside, and that she and her team prefer to have a lot of liquidity in their portfolio because 'it serves as a free option, essentially, on any asset class in the world.' Opportunities will come by, perhaps in the coming months. 'For us, this is still a capital-preservation part of the cycle, although I think we're closer to the end of it than we were a couple months ago.'"
In other news, Barron's writes, "Crypto Took Wall Street on a Wild Ride. Now It's Ending in Tears." The piece briefly mentions money market funds, saying, "Beyond Bitcoin are legions of other tokens, trading platforms, and quasi-banks offering stupendously high yields on deposits. This parallel world of shadow banking and trading is straining to stay above water amid a series of crises, including the failure of a major 'stablecoin,' a hedge fund collapse, and a liquidity crunch at some large crypto lenders."
They explain, "With stablecoins, crypto is reinventing financial wallpaper that started in the 1970s: the money-market fund. Stablecoins, like money-market funds, aim to maintain a fixed $1 price. But unlike regulated funds, stablecoins can own whatever assets they want as reserves, including other tokens like Bitcoin."
The piece tells us, "The perils of this approach became apparent with the recent crash of an 'algorithmic' stablecoin called TerraUSD, wiping out $60 billion in a few weeks. The episode highlighted the system's fragility and contagion risks as Tether, the largest stablecoin, briefly 'broke the buck,' raising concerns that the industry wasn't prepared for a classic run on the bank."
It adds, "The term stablecoin is 'an effective marketing strategy but could really hurt if the stablecoin were to fail,' says Hilary Allen, a law professor at American University who has written critically about crypto. Money-market funds have broken the buck in stressful markets, such as the 2008 financial crisis, requiring bailouts and market stabilization measures, she adds. In stablecoins, owners of the tokens don't even have ironclad redemption rights, let alone a federal backstop."
Finally, a statement posted late last week, entitled, "Secretary of the Treasury Janet L. Yellen's Meeting with the President's Working Group on Financial Markets, the OCC, FDIC and CFPB on Stablecoins," comments, "U.S. Secretary of the Treasury Janet L. Yellen convened principals representing the President's Working Group on Financial Markets, in addition to the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau, today to discuss stablecoin risks and how legislation could contribute to the existing regulatory framework."
It states, "The participants discussed developments since the President's Working Group, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation released the Report on Stablecoins. The Secretary commended the steps that individual agencies have taken within the scope of their mandates and authorities. Secretary Yellen emphasized how recent events have underscored the urgent need to ensure that stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis."
The statement adds, "Secretary Yellen highlighted the need to continue to constructively engage in serious legislative efforts to promptly put in place a regulatory framework for stablecoins that would address current and future risks, such as those related to runs, safety and soundness, consumer protection, the payment system and the concentration of economic power, while complementing existing authorities with respect to market integrity, investor protection, and illicit finance." (See also CoinDesk's "Biden Official Says US Government Could Pass Stablecoin Rules by End of Year.")
