what does Phil say? (Others please comment too)

[hurricanegirl]

at the risk of hijacking Nazul Girls' thread,,,,I too am afraid of the ramifications of Congress not raising the debt limit ( I am also afraid that they will)

Is anyone re-allocating their 401K monies in an effort not to get tanked?

I am mostly mid cap, small cap and int'l at present. If I moved to short term fixed income could I potentially get hurt less?

[wodehouse]

I'm not concerned about long term allocations. However, I am very concerned about the quite large cash balance I have in a money market fund. MMF may be at risk for defaults in Greece, Portugal, etc. Compounded further by the US debt limit situation.

[Deleted]

Why would our money market fund be in jeopardy? We also have a large cash balance and assumed it is quite save not making much but safe. Now you have me concerned

[wodehouse]

Money market funds invest in many sorts of debt instruments, including short term debts from governments. The problem is when the government is close to insolvency or default, like Greece, Portugal, some others. If the debts held by the money market fund default, then that money is lost...gone. There have been some articles lately in the Wall Street Journal, etc. I googled and found this explanatory article: dailyreckoning.com/going-broke-with-greece/

Edit: stuff like this happened some 15-20 years ago with these funds. Some funds were piling into the Mexican peso as that government was paying higher rates than available elsewhere (so the funds ate this up in order to offer higher rates than competition). Then the peso collapsed and was devalued, the higher-risk funds lost money. Usually in such events the parent company makes up the loss out of their own pockets, they don't want to be known as the fund that broke the bank.

[phil5185]

I too am afraid of the ramifications of Congress not raising the debt limit ( I am also afraid that they will)

Yes, which ever way it goes, the market will jump. And the other issue is that both sides might reach a compromise on lower spending and higher taxes - but they so often do that wrong, to obtain higher tax revenue, they blindly raise tax rates. But raising rates most often causes a reduction in tax revenue - businesses downsize/layoff workers. (There is no point to building/selling more product if the tax rate is >50%).

I expect a market jump - but the timing can't be predicted. It might last a few hours and correct the same day. Or the same week. In 1987 it took about 3 months. But I do nothing - I wait for it.

[gobermitcheese]

Why would our money market fund be in jeopardy?

I don't think money market funds are in any jeopardy of loss of principal. If you look at the worst case senario only a few money market funds have ever liquidated and those investors typically get at least .97 cents on the dollar and have some money tied up for a couple of months. This would be a real risk except that it rarely happens and usually with small funds with incompetent management. The real issue you should be watching is inflation and that has the potential to destroy the purchasing power of your investment. I think the feds policies and the govenments inability to control spending could lead to hyperinflation. In this situation your money fund just might be the worst investment you could make.

[Savoir Faire-Demogague in NJ]

I agree with Phil.

Money market funds hold short term instruments other than short term govt securities. Most, and it depends on the fund, are holding commerical paper, and other types of short term securities.

[Havoc]

Money markets have traditionally been stable, but this has been because they have invested in short-term, stable securities. With four European countries in or near junk-rating status, and most European banks loaded with debt from these countries, I don't know that all of the European paper these money markets hold is worth the minimally higher interest rate you get.

And even if you only lose a few cents on the dollar and can't access your cash for a few months while they unwind everything.... most folks put their cash in money markets for the safety and liquidity.