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Traders Corner: Breaking the Buck

Submitted by scnradmin on Thu, 09/25/2008 - 18:03.

As discussed in last week’s Traders Corner it looks like we have
started a Wave 3 correction with the Dow having a 500 and 400 point down day in the same week. As any Elliot Waver worth his salt will tell you Wave 3's are
particularly nasty. However, there is something very sinister lurking out there which in my opinion is not getting the press that it deserves. Please see the link
below:

http://www.ther.com/pdfs/Press%20Release%202008_0916.pdf?scp=2&sq=eric%2...

The Reserve Primary Money Fund has "broke the buck". What does that mean? Money Market Funds are "pooled" investors funds that are used to buy short term investments such as US Treasuries and Commercial Paper. Most funds are priced at $1 per share NAV. If a fund falls below $1 because of losses or expenses being greater than expected the fund will trade below $1 and has thus "broke the buck". As you can see from the press release from The Reserve they state the reason for breaking the buck was because they were exposed to 785 million of Lehman debt securities. The value of those securities at the end of the day was 0! Although the fund still is worth 97 cents, I'm sure that some investors who thought that you couldn't lose money in a money market account are slightly unnerved by these events.

The Reserve is not some "boiler room" outfit with no experience. They are one of the oldest money market funds in the country. Maybe I worry too much and nothing will come of this, but with everyone being very nervous about the integrity of the global financial system, this will not do much to soothe investors frayed nerves! When people get nervous they buy Gold! As you can see from the chart below, gold had its biggest one day gain in history!

Have a great week and "trade safe"!

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