With the Fed hiking interest rates rapidly in order to fight inflation, cash is finally earning its highest yield since before the Great Financial Crisis. Peter Crane, President of Crane Data, and Joseph Wang, former senior trader for the Federal Reserve, join Jack to discuss how the growing attractiveness of cash might cause markets to “break” as investors pull capital out of risk assets and deploy it in cash and money market funds, which harvest yields on cash by investing them in ultra-short duration loans to extremely safe counterparties, primarily the U.S. government and the Federal Reserve. Filmed on September 22, 2022.
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(00:00) Introduction
(02:10) Reflecting On the Fed's September FOMC Meeting
(04:48) What Is A Money Market Fund?
(14:37) What Will Break?
(18:41) Maturity & Composition
(25:31) Why Are There No Inflows Into Money Market Funds?
(27:37) Quantitative Tightening (QT)
(31:316) Who Invests In Money Market Funds?
(39:19) Offshore Dollar Money Market Funds
(43:03) New SEC Regulation on Money Market Funds ("Swing Pricing")
(51:45) What Part of The Financial System Will Crack First?
(1:05:12) How Bad Is Treasury Liquidity?
(1:06:33) Pete Crane on Stablecoins
(1:10:55) Joseph Wang On Sales of Mortgage-Backed Securities
(1:12:16) Outro
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.