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CNBC'​s Squawk Box ran a segment this morning entitled, "​Up Against a Wall of Cash," which discussed whether the huge balances in money market funds and bank savings are fuel for a stock market rally. The news brief, "Discusses whether cash is still king, with Peter Crane, of Crane Data'​s Money Fund Intelligence, and Jon Najarian, of OptionMonster.​com." You can view the recorded video piece here.

Crane tells CNBC'​s Erin Burnett, "Cash in the mattress isn'​t all it'​s cracked up to be, especially if you have kids like me." On zero yields, he says, "You get a medal for that in 2008." Crane says the bubble in Treasuries applies to longer-​term securities. "In the cash markets, you'​re talking about days or weeks, so a zero percent yield, even a slightly negative, were we to see it actually see it stay down there, wouldn'​t be intimidating to this kind of money. The money moving into money market funds is in the millions and billions. It'​s institutional money, so FDIC insurance just doesn'​t do it for those guys," he says.

Optionmonster'​s John Najarian makes the bullish stock argument and cites today'​s Bloomberg article (​see our "Link of the Day"), saying, "The eight previous times we'​ve seen this much cash and a market capitalization at these levels, we'​ve seen a jump of 23% over the next six months.... So I think that a lot of the cash on the sidelines will be committed.... I would focus on some of the big companies that have been hording cash."

Crane counters, "There'​s a little truth to the '​Wall of Cash' theory, but it seems that every time the market'​s down the strategists trot out this [​line] -- '​There'​s $​2 trillion in money funds; there'​s $​3 trillion; now there'​s $​3.​8, almost $​4 trillion' -- but that cash tends to stick there. It'​s institutional money.... Cash competes with cash. Over time, it can fuel the market, and certainly the relative valuations matter, but most of that money is there for payroll, it'​s there for down payments, it'​s there for checking-​account purposes that have nothing to do with the stock market."

Burnett asks, "What of deflation?" Crane responds, "Theoretically you could see negative yields.... I joke that there is nothing new about negative yields. We used to call them checking accounts. If you pay $​8 a month, $​10 a month, you'​re paying someone to hold your money. If you lose less than everyone else, you'​re winning."

CNBC'​s graphics for the piece included additional content. "You will see cash come out, but as a trickle, not a wave," Crane tells CNBC. They also cite Crane in saying, "Fears of numerous funds closing or going out of business are unfounded. Those cases we have seen are isolated incidents."

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"​Tiny yields challenge money funds, investors" writes AP. The article says, "Three months after the government stepped in to prop up reeling money-​market funds, the $​3.​8 trillion industry is largely healthy again, with money flowing back to the safe-​harbor investments at a steady clip. But there'​s one problem: Yields for the safest category of money funds, those that invest in Treasury bills, have sunk to near zero." AP quotes Peter Crane of Crane Data, publisher of the newsletter Money Fund Intelligence, "If Treasury funds yielding zero is your biggest problem in these markets, congratulations." It adds, "Crane, of Crane Data, said even if some of those funds aren'​t able to maintain yields big enough to offset expenses, they'​ll have enough financial cushion to ride things out until yields rebound." Crane says, "This is a gradual problem that fund companies will have plenty of time to deal with.... You might see a new account fee, or higher wire transfer fees," comparing the "`​situation to banks that begin offering free checking accounts but raise fees for other services such as covering bounced checks." See also, Fund Action'​s "​Assets Likely To Rise Despite Challenges", which says, "Money market fund assets are likely to increase during 2009 in spite of unprecedented low interest rates, possible sweeping regulatory changes and increased costs from maintenance of government insurance. These challenges may also drive some players out of the business. Peter Crane, ceo of Crane Data, believes that investor flight to safety will ease in 2009, but so long as the overall economy remains uncertain, institutions will want to increase their cash holdings. 'Cash is the only true safe harbor, and money funds remain the best way to access that,' he said, particularly for large institutions."

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Investment News features "​Analyst calls rate cuts a foe to money funds". The article says, "Money market mutual funds that invest in Treasuries could cost investors money if the Federal Reserve Bank cuts interest rates further, according to Peter Crane, president of the Westborough, Mass.-​based research firm Crane Data LLC. Yields for Treasuries are already less than half a percent and 'if the Fed cuts rates again, you will see [​more] firms' giving waivers on fees ... to avoid a negative yield,' he says quotes IN. It adds a quote from Crane, "Negative yield is not akin to '​breaking the buck.' It just means that you are charging more expenses than you are taking in. The investor is paying a fee that is larger than what you are earning. Most firms would waive the fees to avoid paying a negative yield." Also, see Reuters' "​Historic low US T-​bill rates hammer money funds" and WSJ'​s "​Low Treasury Yields Buffet Money Funds."

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"​Money-​Market Fund Yields May Fall to Less Than Zero, Crane Says" writes Bloomberg. (Note: You can hear Pete Crane discuss this topic on Bloomberg Radio at 2:​50pm EST and on Bloomberg TV at 4:​12pm EST.) "Investors in money-​market mutual funds that focus on U.​S. Treasuries may lose money for the first time if the Federal Reserve cuts interest rates next week and yields become too small to cover expenses," says the article by Christopher Condon. "Record-​low yields on government debt have already led money-​market funds to waive fees to keep returns positive. If the Federal Open Markets Committee, as expected, cuts its target rate, some Treasury funds may allow returns to turn negative, said Peter Crane, president of Crane Data LLC, a money-​fund research firm in Westborough, Massachusetts." It quotes Crane, "No one has ever paid above and beyond their interest income to be in a fund.... But if we see another cut, we'​ll likely see negative yields." Finally, the piece adds, "Money-​market managers could impose a system of incremental debits or charge monthly account fees, Crane said."

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"​Point of no return: Interest on T-​bills hits zero" writes AP, saying, "Investors are so nervous they'​re willing to accept the same return from government debt that they'​d get from burying money in a coffee can -- zero. The Treasury Department said Tuesday it had sold $​30 billion in four-​week bills at an interest rate of zero percent, the first time that'​s happened since the government began issuing the notes in 2001. And when investors traded their T-​bills with each other, the yield sometimes went negative. That'​s how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place." The article quotes Lou Crandall, chief economist at Wrightson ICAP, "No one wants to run the risk of any accidents." It also quotes Crane Data LLC'​s President Peter Crane, "There'​s a price for safety.... Down slightly is the new up." See also, Bloomberg'​s "​Treasury Bills Trade at Negative Rates as Haven Demand Surges", which also mentions, "Money-​market mutual funds that buy mostly Treasuries are starting to turn away new investors as the record low yields pull down returns for shareholders and squeeze managers' fees." Finally, see the U.​S. Treasury'​s "​Daily Treasury Bill Rates" page.

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Barron'​s writes "​Money Funds Slowly Get Back on Their Feet", saying, "A money-​market mutual fund is one of those things you don'​t really notice until they don'​t work. Everyone took notice in September, when many of these supposedly safe, low-​yielding funds stopped functioning. But while economists, traders and pundits debate other aspects of the government'​s bailout package, the money-​fund business seems to be responding well to multi-​faceted treatment. The market has revived enough to hit a record $​3.​7 trillion in assets this year. The piece quotes Moody'​s Marty Duffy saying, "​So far the government initiatives are achieving their objectives. Signs that conditions are improving include stable inflows into money funds, longers average maturities, a lower LIBOR, and a reopening of the commercial paper market. It also quotes Peter Crane, "Go down the list. Almost every major component of money funds is being backstopped -- repos, agency securities, asset-​backed commercial paper, even certificates of deposit. It'​s not just belt and suspenders but also parachutes and safety net."

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"​Money Funds Re-​Up Treasury Guarantee, Despite Cost" writes ignites.​com. The article says, "With a deadline looming, a number of large fund firms have announced they will re-​enroll in the Treasury'​s money market insurance program despite its costs for funds battling to control expenses amid the market downturn. The majority of shops that initially enrolled in the Treasury'​s $​50 billion guarantee for money market funds are expected to stay with the program. Leaving the program would preclude these shops from rejoining in the future." It adds, "Invesco Aim, Legg Mason, Federated, Dreyfus and UBS are among the funds that have decided to continue with the Treasury program, according to spokespeople for the firms and SEC filings. T. Rowe Price, Fidelity, Vanguard, Hartford and Oppenheimer say they will soon announce whether they will stay in the program, but industry sources don'​t see them leaving." The piece quotes Peter Crane, "I doubt anyone will be bold or stupid enough to shed the protection at this point. If they do, they'​ll likely hear a giant sucking sound -- investors leaving."

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