via the always astute Doug Kass, we must point you to this simply unbelievable document  . . . from Sentinel Management Group.

That’s right, some Money Markets Substitutes — safe as cash, totally liquid — are halting redemptions. (2:52 pm:  This is NOT a Money Market fund, its a substitute).

Note: there is a big difference between Money Market Funds, and there "enhanced" Money Market Funds — namely, whether or not they are FDIC guaranteed to $100k.  (This one is not insured)

Once again, we see what the reach for yield has wrought . . .

>

click for full doc

Sentinel

>

UPDATE: August 124, 2007, 2:24pm

Here’s the Morningstar and Bloomberg update:

So much for money market substitutes. There have been a number of articles over the years about using short- or ultrashort-term bonds as money market substitutes. Yields on money market funds are typically low so it’s understandable that you might want to boost income by moving to ultrashort- or short-term bond funds, which sometimes have a higher yield.

However, the subprime mess may forever dispel investors of that notion. Ultrashort is supposed to be the most conservative, low-risk bond fund around, yet a number of funds are in the red for the trailing four months and even the year. Consider that ultrashort has been about the worst place to be for the past four weeks. Through Friday, the average ultrashort fund is down 0.36%, versus gains of 0.37% for short-term bond funds, 0.37% for intermediate, and 0.16% for long bond funds. Only high-yield, emerging markets, and bank-loan funds have fared worse. 
-‘Money Market Substitutes’ Get Hit by Subprime Woes

And

"Sentinel Management Group Inc., the Illinois-based firm that manages $1.6
billion for clients, said it asked regulators for permission to freeze
withdrawals because credit-market turmoil made it impossible to trade.

The firm, based in Northbrook, contacted the Commodity Futures Trading
Commission for approval to halt redemptions “until we can honor them in an
orderly fashion,” according to an Aug. 13 letter to clients.

The CFTC had not granted permission as of this morning, said an assistant to
Eric Bloom, Sentinel’s president and chief executive officer, who declined to be
identified. Bloom didn’t return calls for comment.

The firm said it was a victim of panic in among investors caused by the
collapse of the subprime-mortgage market."
-Sentinel Management Group Seeks to Halt Redemptions

Sources:
Sentinel Management Group Seeks to Halt Redemptions
Jenny Strasburg and Matthew Leising
Bloomberg, Aug. 14, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W7XECOfjPg&

‘Money Market Substitutes’ Get Hit by Subprime Woes
Russel Kinnel
Morningstar, 08-13-07

http://news.morningstar.com/articlenet/article.aspx?id=203490&_QSBPA=Y&fsection=Comm3

Category: Credit, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

78 Responses to “Money Markets Substitute Halting Redemptions”

  1. “Where’s that money, you silly stupid old fool? Where’s that money? Do you realize what this means? It means bankruptcy and scandal and prison. That’s what it means. One of us is going to jail – well, it’s not gonna be me.”

  2. Royce says:

    That letter sounds like someone using the market to cover an individual screwup. Investors aren’t dumping GE at Tyco-level prices. The stock is still trading well above its 200-day moving average, above where it’s been sitting for the past two years.

  3. david foster says:

    “trading like junk bonds as panicked investors drop names like General Electric at Tyco-like prices”…is this a joke? Here’s the chart for GE stock. Yield is 2.9%, which is scarcely junk-bond-like. I haven’t looked at GE debt this morning, but I seriously doubt that it is trading at junk-bond-like levels.

  4. Dan says:

    This is from the section on Sentinel’s home page as to why investors should choose Sentinel:

    Q: Will your funds be accessible when you need them?

    A: Absolutely. Sentinel is prudent in its placement of funds, in order to provide a minimum of risk while maintaining maximum liquidity. All client funds are placed in readily marketable government and corporate securities, a large portion of which are in overnight investments, allowing us to meet client withdrawal needs while maintaining the integrity of our portfolios.

  5. Peter B says:

    I’m not sure if this is the reason for the mkt pullback this morning but a story on Bloomberg at 9:48 says 17 Canadian asset backed commercial paper issuers “are seeking back up financing from banks after failing to sell their short term debt, ratings company DBRS said.”

  6. michael schumacher says:

    The mgmt. at Sentinel is very cleverly (and wrongly) using the scare in the markets to protect themselves or (as mentioned above) a larger screw-up.

    Fred would love that letter…..

    Ciao
    MS

  7. Stuart says:

    it that’s not a warning shot across the bow of market “shillism”, then nothing is. Does anyone really think that Sentinel was the only cockroach bitten like this? Jerry Bowers, Kudlow,….. heads up!

  8. scorpio says:

    the market needs to bear down on this. as Dr Evil would say, “c’mon folks, i need the info”. if the likes of a Schwab for example has been screwing around w unorthodox investments in its money market accounts, look out below. that $100,000 deposit protection at the banks is gonna look mighty meager.

  9. Sven says:

    MS,

    Fred’s out trying to find his bull market. He’ll read it when he gets back.

  10. Steve says:

    Wow…you guys beat the market to this story.

  11. kharris says:

    Bloomberg has picked up the story. That should give it legs.

  12. dukeb says:

    The Reserve posted a reassuring newsletter about the exposure of their money market funds to CMBS, RMBS, and CDOs. I guess at this point a lot of money market providers are feeling the need to either communicate being with us or against us.

    http://ther.com/pdfs/Reserve_Insights_07.pdf

  13. Dave says:

    Dan, you are right.
    See all the news related to Coventree up in Canada…ABCP mkt blowing up (1st time in 12 yrs of existence)

  14. tom says:

    This is worrisome. I read about this potential money market issue last week, so I called Schwab last Friday. They said there is no exposure to CDO’s or subprime in their MM funds (SWVXX). The customer service rep said many people were calling about this. Should I believe what they say? Will this Sentinel issue trigger increased MM fund redemptions at the Schwab’s of the world? Will this trigger redemption halts at these firms? Watch out below is right!

  15. UrbanDigs says:

    ummm..this doesnt look good. Doug Cass stop jumping up and down!

  16. michael schumacher says:

    article posted..

    http://www.reuters.com/article/ousiv/idUSN1334595320070814?src=081407_1039_INVESTING_analysis%3A_hedge_funds

    Spectre of Deflation posted this article on another thread without a link. It’s so relevant here..

    Ciao
    MS

  17. Stuart says:

    The thing is, money market funds are an investment vehicle where the most risk adverse investors go. The vast majority of people I know over the age of 50 invest in money market funds, GICs, etc… They view their money as safe and detached from everything that is going on right now in the credit market and stock market. They don’t understand those markets and that is why they bought the “safe” money market fund or GIC in the first place. For one of those funds to lose 24%, that would send those investors fears over the moon. One way to shake up the public is to get Mom and Dad on the backs of their kids to answer what the hell is going on. We’re there now or damn close and that is when this goes to a sigma 99999999 affair.

  18. Jesse says:

    First, I think they are referring to GE and Tyco corporate bonds, and not stocks.

    Second, there is a lot of confusion in the media about Sentinel and exactly what they do, the ‘media’ being CNBC and BloombergTV.

    Barry, you should add an explanation ASAP clarifying the connection to ‘money markets’ and is this just a junk bond hedge without liquidity for redemptions, or something more specific to money market funds.

    As it is now your piece contributes to the confusion.

    P.S. you need to segment your blog. its getting to big and unwieldy.

  19. Fred says:

    Well, the CTFC just told Sentinel to “pack sand”…they will NOT allow them to halt redemptions. THIS IS GREAT NEWS!!

    Idiots that fell for 8% money markets deserve to get their fingers burnt….and losses on their “money market”.

    Isn’t it interesting that the VIX and VXO didn’t make a new high on this “scary” news?

    Kass is out there suggesting this is everyday practice for main street firms…typical for him. Fear is his weapon.

    You will look back at this period, like all past pukefests and wonder why you didn’t buy quality stocks…mark my words.

  20. SPECTRE of Deflation says:

    article posted..

    http://www.reuters.com/article/ousiv/idUSN1334595320070814?src=081407_1039_INVESTING_analysis%3A_hedge_funds

    Spectre of Deflation posted this article on another thread without a link. It’s so relevant here..

    Ciao
    MS

    Additional information:

    Hedge Fund Firm Sentinel Management Asks to Halt Redemptions

    By Jenny Strasburg and Katherine Burton

    Aug. 14 (Bloomberg) — Sentinel Management Group Inc., a Northbrook, Illinois-based hedge-fund manager, has asked regulators for permission to halt investor withdrawals.

    The firm contacted the Commodity Futures Trading Commission for approval to halt redemptions “until we can honor them in an orderly fashion,” according to an Aug. 13 letter to clients.

    The firm managed $1.6 billion as of last month, according to a filing with the U.S. Securities and Exchange Commission.

    Eric Bloom, the firm’s president and chief executive officer, didn’t immediately return a call seeking comment. An assistant who declined to be named said the CFTC hasn’t granted the firm’s request yet.

    To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net .
    Last Updated: August 14, 2007 11:21 EDT

  21. Pool Shark says:

    Nice try Fred…

    CFTC didn’t tell Sentinel to ‘pack sand’; they simply claim it’s not in their authority to grant such a request:

    WASHINGTON, Aug 14 (Reuters) – The U.S. Commodity Futures Trading Commission has no authority to grant Sentinel Management Group’s request to halt client redemptions, an agency official said on Tuesday.

    “The CFTC has no authority in this area,” the CFTC official, who asked not to be identified, told Reuters. “This isn’t something we do.

    “We have no role in whether or not the company does this and whether the client accepts it,” the official said.

    Looks to me like Sentinel can do whatever they want

  22. paul says:

    see ‘Money Market Substitutes’ Get Hit by Subprime Woes @ Morningstar

    http://news.morningstar.com/articlenet/article.aspx?id=203490&_QSBPA=Y&fsection=Comm3

  23. lauteus says:

    Hey, at least it’s only money… Just think, at least you don’t have to worry about your house value or inflation (“great time to buy” and “core inflation”). Better to be poor with a roof over your- oh sht!

  24. Fred says:

    Any brainfart who bought an above treasury money market deserves the losses….and losses they will get (if they panic).

    VIX is about to turn negative on the day.

    I expect a very tradable rally right now.

  25. Stuart says:

    The real brainfart is the one who thinks his/her long term treasuries are safe.

  26. techy2468 says:

    Fred… you still dont give up do you? if i am not wrong…walmart, homedepot are reporting less consumer spending….the last nail in the coffin.

    your comments about that?

    i guess you will accept only when we are really in a recession and there are layoffs everywhere….or maybe you will just disappear from this blog on that day.

  27. michael schumacher says:

    along the same lines as your 3 day SPY trade??

    What happened to that???

    Ciao
    MS

  28. GerryL says:

    I have been worried about this for a little while. Bill Fleckenstein recently wrote about money market funds potentially having problems. I have an ultra short bond fund at Schwab that was supposed to be very safe and yielded more than a typical money market. I checked it yesterday and found that it has lost over 1% in value in the last six weeks. There goes the extra yield. Barry is right about reaching for yield. I immediately moved it to Schwabs regular money market. I hope that is safe. It brings up the question. How can you tell if your money market is safe?

  29. jay says:

    has this letter been confirmed? it would be easy to forge. and second, how do we know they are referring to the money market account? it seems weird they don’t reference it in the letter…

  30. James Bednar says:

    has this letter been confirmed?

    This letter struck me as being odd as well. Mainly due to the fact that it seems very poorly written for a mea culpa.

    jb

  31. Harleydoger says:

    You reach for yield you get your hand chopped off. First AXA, then Coventree, now Sentinal, MONEY MAREKT FUNDS!! Further to that Thornburg was a PRIME mortgage player I repeat PRIME. OH yeah its contained… contained to the planet earth that is !

    Yet in the face of this mounting evidence we still have the nothing to see here move along, buy the dips, we’re off the lows rah rah crowd ignoring the facts. This will end in tears for them. It is the nature of markets from boom to bust and back again and cannot be altered or manipulated no much how much intervention. I suggest they have their rosaries at the ready, they may need them. Never bullish or bearish but rather seeking the right/winning side vs the wrong/losing side.

  32. Fred says:

    This is NOT a money market fund. It is “short term investment alternative”.

    See (what I believe to be) the fund description here:

    http://www.sentgroup.com/125.html

    Nowhere in the fund despription do they guarantee principal.

  33. j says:

    “we don’t believe it is in anyone’s best interest if a run on Sentinel took place and we were in a forced liquidation mode.”

    Either their marketing department in run by idiots or this is forged. No one would write something like that unless they are a bunch of complete tools.

  34. AD says:

    Gerry,

    Answer: Are you holding the briefcase full of it?

  35. Jesse says:

    what money market funds GUARANTEE the return of principal? Isn’t that Barry’s point? Dont’ assume yours does.

  36. brig says:

    “some Money Markets”

    How is one firm, some? some implies more than one.

  37. Sven says:

    With regard to how poorly written this letter was, how about the point raised over at dealbreaker.com about a hedge fund appealing to the wrong regulator for assistance.

    Maybe these guys/gals are just hacks–but hacks with lots of redemptions on their hands. :) I have a friend here in NYC who got hired on at a hedge fund after working as a temp there. You wouldn’t believe what they have her doing…financially.

  38. Tim says:

    stuart is correct, I will just repeat his comments:

    “Barry, you should add an explanation ASAP clarifying the connection to ‘money markets’ and is this just a junk bond hedge without liquidity for redemptions, or something more specific to money market funds.

    As it is now your piece contributes to the confusion.”

  39. SPECTRE of Deflation says:

    Sentinel Letter from the Street.com:
    As you undoubtedly know, the credit markets, along with most other markets, have experienced a liquidity crisis in the past several weeks. Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade. We’ve all read the stories about one hedge fund or another suffering losses related to subprime exposure and closing down or being rescued. This fear, while warranted in some cases, has spilled over into the rest of the credit market and liquidity has dried up all over the street. In addition, investment banks and securities firms are stuck with LBO deals they’ve already entered into but cannot find buyers for the bonds so must inventory them themselves. This liquidity crisis has caused bids to disappear from the market and makes it virtually impossible to properly price securities or to trade them. High grade securities are trading like junk bonds as panicked investors dump names like General Electric at Tyco‐like prices.

    We have carefully monitored this situation for the past several weeks and have met regularly to discuss the potential impact it may have on our clients. We had previously thought that the market would return to some semblance of order and that our clients would not join in the panic. Unfortunately, this has not been the case. We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients. We contacted the CFTC today and asked for their permission to halt redemptions until we can honor them in an orderly fashion.

    Sentinel has always sought to protect your interests and since our inception in 1980, we have never experienced a situation quite like this one. We will continue to monitor the markets and we will raise cash as opportunities present themselves.

    We understand that this will obviously cause inconveniences on your part however, at present, we do not see an alternative and we don’t believe it is in anyone’s best interest if a run on Sentinel took place and we were in a forced liquidation mode.

    We value your trust in us these past 28 years and this has been a very difficult decision for us and we understand the implications of this decision both on you and on Sentinel. We feel, however, that this is the best way to assure you the best possible value on your investment.

    We will remain in contact with you and update you as things progress.

  40. Jesse says:

    P.S. I am NOT Stuart. :)

    FCM = futures commission merchant

    Sentinel 125 Portfolio
    Investment Objective:

    The 125 Portfolio is intended to provide Sentinel’s FCM clients with a short-term investment alternative that combines safety of principal, liquidity and competitive yields compliant with the CFTC’s Rule 1.25. An investment in the 125 Portfolio provides an indirect, undivided pro-rata interest in the underlying securities.

    Allowable Investments:

    » Obligations of the U.S. Treasury and GNMA
    » Short term commercial paper rated A1/P1
    » Medium and long term debt rated AA or higher
    » Bank time deposits
    » Repurchase agreements collateralized by the above

    Investment Strategy:

    Sentinel’s 125 Portfolio has been created and designed to adhere to the guidelines of the CFTC’s Rule 1.25 governing allowable securities for the investment of customer (segregated) funds by FCMs. Sentinel structures this portfolio to include only those securities that meet the high rating standards of the rule. Sentinel uses the provision of the rule dealing with maximum average maturity, as a way to deliver yields that exceed those of competing money market funds whose maturity guidelines are subject to more constraining regulation.

    In order to accommodate the liquidity needs of FCM clients, this portfolio will, typically, hold forty to fifty percent of its assets in the form of overnight repurchase agreements (repos). Special market conditions may dictate higher or lower percentages as prudent departures from the norm.

    Sentinel can customize a client’s portfolio to suit individual preferences for maturity and target yield.

  41. SPECTRE of Deflation says:

    We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.

    Sentinel and let’s throw in all the Hedgies, investment banks ect.,ect. sounds just like the small retail investor who was waiting for market conditions to improve so that they could sell CMGI near it’s top of $158 shortly before everything went to Hell in a hand basket. Good luck with the plan fellas!

  42. jesse says:

    I think some of the confusion in the media was designed to obscure the impact.

    Some media types dismissed Sentinel as a “junk bond hedge fund.”

  43. Stuart says:

    Wait for it. Paulson will be out any minute now…. “look, it’s contained, really, it is, honest, trust me. I’m from Goldman Sachs and would anyone from GS ever give BS. Honest. ”

  44. Jesse says:

    ….or distorted by wishful thinking by true believers in the stock market bull or some other cause (like deflation).

    If these guys blew up their 125 portfolio, which sounds like it might be the case, then lot of money market funds are in question.

  45. Sam says:

    They basically guarantee principal in their FAQ. While htey acknowledgethe funds aren’t FDIC insured, they try to infer that since the funds are at BoNY, the principal is secure

    http://www.sentgroup.com/faq.html#1

    That entire FAQ is one misleading statement after another.

    It’s also the SEC that has juristinction here, not the CFTC, so as an SEC registered advisor, I imagine, the SEC will be their momentarily.

  46. joe says:

    check this out. I used the wayback machine to go back and look at Sentinel’s website. You have to read this to believe it. Some of their benefits include: daily liquidity, no client losses ever and high yields

    http://web.archive.org/web/20070104214924/http://www.sentgroup.com/why.html

  47. mhm says:

    And so the storm gathers…

    “”" quote from thomson financial
    The USD/JPY is under renewed pressure, … The DJIA is down 135 pts with the bad news continuing on rumors that that a major investment bank is having problems with funding as the try to line up cash for Wednesday’s funding operation. There is also speculation of a Puerto Rico bank with subprime problems and there is speculation too of money market funds from good names with having withdrawal problems since they too tried to buy low-quality debt to enhance returns…
    “”"

  48. Marcus Aurelius says:

    Forgery?

    Ha.

    You are a conspiracy theorist extrordinaire.

    The cash was gambled unwisely, and now it is gone. There is no nice, or easy, way to tell someone you have bankrupted them. This is just the beginning. But, don’t despair: reality will go away if you ignore it.

    Ha.

  49. TexasHippie says:

    techy2468 – I find myself unusually in agreement with Fred’s bullishness on tech, which stands to benefit from global gains and capex in my opinion. But I agree with many on this board that the US is already in a recession or will be soon; the US consumer is screwed. But I’ve been buying tech on this fear.

  50. Stuart says:

    with tomorrow’s redemption deadline, the question remains,

    Is this a liquidity event or solvency/debt event.

    Nouriel Roubini makes a strong case for solvency. I’m in his camp.

  51. j says:

    “You are a conspiracy theorist extrordinaire.”

    Yea because everything you read on the internet is true. You are as unobjective as the the side you are bashing. I’m just trying to ascertain fact from fiction. But why let some unconfirmed rumors spoil your fun.

  52. Fred says:

    Barry…there seems to be some confusion on Sentinal right now….was it a Hedge Fund that is stopping withdrawls or an enhanced short term money fund?

  53. Nemo says:

    Report is incorrect; “Sentinel Management Group” is not a money market fund manager.

    http://www.economicsbriefing.com/2007/08/report-on-sentinel-management-group.html

  54. Jesse says:

    DJ Sentinel Won’t Satisfy Redemption Requests, CME Says>CME
    Tue Aug 14 13:11:48 2007 EDT

    DOW JONES NEWSWIRES

    Sentinel Management Group, a firm that manages cash for other investors,
    won’t satisfy redemption requests from clients and has stopped accepting new
    money, CME Group Inc.(CME), operator of the world’s largest derivatives
    exchange, said on Tuesday.

    Sentinel manages roughly $1.5 billion and none of that money is on deposit
    with the CME’s clearing unit to support collateral and performance bond
    requirements, CME said.

    Sentinel is not a clearing member of CME Group or any other exchange, but the
    firm does provide investment advisory services to institutional and corporate
    clients, including a limited number of CME clearing members, the company added.

    CME’s clearing member firms have continued to meet all of their obligations
    to CME Clearing and remain in good standing, the company also noted.

    -Alistair Barr; 415-439-6400; AskNewswires@dowjones.com

  55. Marcus Aurelius says:

    Yea because everything you read on the internet is true. You are as unobjective as the the side you are bashing. I’m just trying to ascertain fact from fiction. But why let some unconfirmed rumors spoil your fun.

    Posted by: j | Aug 14, 2007 1:56:32 PM

    __________

    Not a personal dig at you, per se. Point is, forgery or real, the underlying reality cannot be challenged by wishful thinking. The pyramid has stopped growing, and all that the base holds up is now on the way back down (happens every time, check your history). Looking for good news? Tune in to Kudlow.

  56. techy2468 says:

    Stuart…

    how is tech going to benefit in the long run if economy goes into a recession.

    lets see: economy is going into recession because consumer is neck deep in debt (he has spent all he can since 1995 or so)

    now the only way he can recharge is by inflation…his wages are doubled and he can start paying back old debt….all this can take 2-3 years atleast.

    people say global economy is doing great…..my opinion: global is good as long as usa is a consumer….just watch india and china go down at 10X if usa goes into recession.

    so if planet earth goes into recession…..why will business keep investing in technology…

    my guesstimate:
    business slows capex by next month…and completely frozen to wait out recession from Nov 2007.

    confirmed slowdown of usa economy by Jan 2008 (after holiday binge….no sales of anything anywhere)

    Layoffs start in Feb 2008.

    no sector is going to do well except maybe healthcare…and essential services.

  57. Fred says:

    SHAME on the people who spread this rumor of a money market halting redemptions.

    IT WAS A COMMODITY BASED HEDGE FUND not a money fund!

    Classic bear raid tactics, and the media was complicit in this deception.

  58. Guambat Stew says:

    Dear Client:
    As you undoubtedly know, the credit markets, along with most other markets, have experienced
    a liquidity gusher in the past several years. Investor insouciance has overtaken reason and has induced a period
    in which most securities have simply ceased to trade in any reasonable fashion. We’ve all read the stories about one hedge fund
    or another “suffering” an embarrassment of money being thrown at them related to commodities and quants or other quaint things.
    This fear, while warranted in some cases, has spilled over into the rest of the credit market and liquidity has flooded
    up all over the street. In addition, investment banks and securities firms are deep into LBO deals
    they’ve already begun to put their clients into but cannot find enough sellers for new deals so must invent them themselves.
    This liquidity crisis has caused risk to disappear from the market and makes it virtually impossible to
    properly price securities or to trade into them. High price securities are trading like government bonds as panicked
    investors jump names like General Electric at Tyco‐like prices.
    We have carefully monitored this situation for the past several months and have met regularly to
    discuss the potential impact it may have on our clients. We had previously thought that the market
    would return to some semblance of order and that our clients would not join in the panic.
    Unfortunately, this has not been the case. We are concerned that we cannot meet any significant
    new client requests without selling securities at deep discounts to their “fair value” (wink, nudge) without casting
    necessary fees to all our clients. We contacted the CNBC today and asked for their permission to have Jim Cramer be our
    redemption until we can no longer honor him in an orderly fashion.
    Sentinel has always sought to protect your interests and since our inception in 1980, we have
    never experienced a situation quite like this one. We will continue to mount the markets and we will
    raise hell as opportunities present themselves.
    We understand that this will ultimately cause inconveniences on everyone else’s part however, at present,
    we do not see an alternative and we don’t believe it is in our best interest if Sentinel took second
    place and we were in a forced liquidation mode to deal with all the bubbly we’ve accummulated from our efforts.
    We value your trust in us these past 28 years and this has not been a very difficult decision for us
    and we understand the implications of this decision both on you and on Sentinel and on the credit markets at large.
    We feel, however, that this is the best way to assure us the best possible value on your investment.
    We will remain in contact with you and update you as things progress.
    Or not.
    Sincerely,
    Sentimetal Management Group, Inc.

  59. Jesse says:

    Based on what we have found out so far, it looks as though Sentinel was providing money market management services on a wholesale basis to providers of commodity trading accounts to the retail trade.

    We have some anecdotal evidence of this impacting margin calls, and forcing some liquidation of positions in the base metals.

    We can’t figure out how a clearing member can put cash into sentinel accounts short term, and then not be able to cover a margin call for a sub if the price declines IF they are a clearing member of the LME or CME. We thought the rules prohibited that.

    Barry any insights?

  60. Jordan says:

    Coventree is halted…..uh oh

  61. michael schumacher says:

    But on the way up all the media deception, deceit and general bullshit was ok?? eh Fred

    sucks when you’re now on the wrong side of the deceit.

    It works both ways…

    Ciao
    MS

  62. Sean says:

    Not to defend Sentinel, a firm I had never heard of until today, but I think that an institutional investor buying a product with a 683 bps yield (http://www.sentgroup.com/documents/prime.pdf) that is pitched as a cash alternative is letting their greed override their common sense. The institutional shareclass of the Vanguard Prime money market mutual fund is yielding 527 bps after a 9 bps management fee. That is 156 bps less than the Sentinel product–that yield chasm should tell you something about the quality/liquidity of the assets you own, relative to the quality/liquidity of the Vanguard money market mutual fund.

  63. SPECTRE of Deflation says:

    I just heard the disclaimer for Cramer on CNBC. You damn well better seek advise, but make it psychiatric advice. LOL!

  64. steeliekid says:

    Money Market Funds: There is no guarentee that the NAV will remain @ $1. Most fund managers will mainain the $1 NAV with their own funds if they have to before they “Break the buck”

    An Ultrashort fund is not a money market fund. Though often marketed as such, NAV’s will and do move above and below the targeted NAV, wether it be $1, 5 or 10. Back in 2001, I worked for a Pittsburgh based firm specializing in MM Funds and our Ultrashort got clipped for a good chunk when some of the junk names used in the barbell defaulted. I just looked at the most recent fact sheet and it has close to 29% of fixed rate and arm MBS & 14% corps.

  65. johntron says:

    low volume decline today…..barring a major earth-shattering event, we should see the dead cat bounce soon to SPX 1500.

    After that….all bets are off.

  66. Barry Ritholtz says:

    I thought this was clear in the original post above — but apparently not.

    This is an “Enhanced” Money Market Fund — its NOT FDIC insured, its not just Federal Treasuries.

    I will fix it in the main body now . . .

  67. michael schumacher says:

    Sean-

    That is the major problem of these vehicles…..and the emotions (i.e. greed) that is counted on. All People see is the end result. Even a diligent person that spends alot of time trying to piece it together has a hard time figuring out what is really in those offerings. Imagine waving that sort of suggested return in front of the person who has little or no knowledge and you begin to see how complicit the enablers of these funds are.

    I think it’s just a riot that people actually believe that you can’t loose ANY money with any of these programs. AS far as the authenticity of that letter…it may or may not be authentic but it does sort of outline a MAJOR problem.

    Ciao
    MS

  68. Dave says:

    waiting for Abby Cohen to raise her target on S&P

  69. Jesse says:

    Its still not clear to me whose money the FCMs were
    giving to Sentinel on the overnight, their own or the customers’ money. It appears to me to be the customer money.

    Here’s the key paragraph

    Sentinel’s clients include so-called futures commission merchants, businesses that manage buy and sell orders for commodities futures contracts. FCMs are required by the CFTC to keep their customers’ money segregated from funds they invest on their own behalf. By that measure, Sentinel is 17th in terms of customer money for U.S. FCMs, according to July 31 data from the CFTC.

    FCMs make money by earning overnight interest on their customers’ cash on hand.

    Sentinel Management Group Seeks to Halt Redemptions (Update3)
    By Jenny Strasburg and Matthew Leising

    Aug. 14 (Bloomberg) — Sentinel Management Group Inc., the Illinois-based firm that manages $1.6 billion, said it asked regulators for permission to freeze client withdrawals because credit-market turmoil made it impossible to trade.

    The firm, based in the Chicago suburb of Northbrook, contacted the Commodity Futures Trading Commission for approval to halt redemptions “until we can honor them in an orderly fashion,” according to an Aug. 13 letter to clients.

    The CFTC hadn’t granted permission as of this morning, said an assistant to Eric Bloom, Sentinel’s president and chief executive officer, who declined to be identified. Bloom didn’t return calls for comment.

    CFTC spokesman Dennis Holden declined to say whether the firm’s request had been received.

    “We are aware of the situation and we are monitoring it.”

    The firm said it was a victim of panic by investors caused by the collapse of the subprime-mortgage market.

    “Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade,” according to the client letter, which does not specify which funds are affected. “We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.”

    Sentinel invests for clients such as managed-futures funds, high-net-worth individuals and hedge funds that want to be able to withdrawal their cash quickly. Its investments include short- term commercial paper, foreign currency, investment-grade bonds and Treasury notes, according to its Web site.

    Multiple Regulators

    The firm is regulated by the CFTC, National Futures Association and U.S. Securities and Exchange Commision, according to its Web site.

    “The decision whether to halt redemptions appears to be a business decision by Sentinel pursuant their contract with their customers and not a regulatory issue,” said Dan Driscoll, the NFA’s chief operating officer, said in a telephone interview.

    Sentinel’s clients include so-called futures commission merchants, businesses that manage buy and sell orders for commodities futures contracts. FCMs are required by the CFTC to keep their customers’ money segregated from funds they invest on their own behalf. By that measure, Sentinel is 17th in terms of customer money for U.S. FCMs, according to July 31 data from the CFTC.

    FCMs make money by earning overnight interest on their customers’ cash on hand.

  70. Schizohedron says:

    @guambat: “We contacted the CNBC today and asked for their permission to have Jim Cramer be our redemption until we can no longer honor him in an orderly fashion.”

    A literal LOL from me. Well done.

  71. Sandie says:

    A quibble regarding: “Note: there is a big difference between Money Market Funds, and there “enhanced” Money Market Funds — namely, whether or not they are FDIC guaranteed to $100k. (This one is not insured)”

    FYI – NO money market funds are FDIC insured. The govt insurance only applies to bank “money market” deposit accounts. If you are confused about this, I can only imagine what Joe Sixpack understands about it.
    http://www.fdic.gov/consumers/consumer/information/fdiciorn.html

  72. Idaho_Spud says:

    Fred Said:
    “SHAME on the people who spread this rumor of a money market halting redemptions.

    IT WAS A COMMODITY BASED HEDGE FUND not a money fund!

    Classic bear raid tactics, and the media was complicit in this deception.”

    C’mon Fred. On the bullish side we have the President of the US, Fed Chairman, Secretary of the Treasury, Kudlow, Ben Stein, and the President of the ECB telling us that things are going swimmingly!

    If there are in fact no skeletons, then why are the credit markets so, er… jittery?

    As MS pointed out, spin can work both ways, and the spin up has been *way* overdone.

    Try to think of this as a once-in-a-lifetime opportunity to purchase shares of GS at $10, rather than a really bad thing ;)

  73. Don says:

    Good comment Sandie. NO money market fund is guaranteed. Forget the Sentinel situation for a moment. Earlier this year, Fidelity Cash Reserves’ had a huge position in brokerage repos backed by collateralized mortgage obligations. Anyone think that’s guaranteed? The only money fund-like investments that are guaranteed are bank-issued money market *accounts*. Go into a bank and buy a money fund and even THAT isn’t guaranteed because a money fund is usually issued by the bank’s brokerage arm. To quote from the FDIC, “Do not confuse a money market mutual fund with an FDIC-insured money market deposit account…”

  74. Leisa says:

    The run on sentences and lack of appropriate commas are indicative of a management team with little discipline or attention to detail. Accordingly, who could possibly be surprised by these events?

  75. DavidB says:

    This is a good example of why mutual funds are so dangerous. People say they are run by smart money managers and thus are safer. In a crisis they are run by redemptions. When the crowd panics and redeems they are forcing sales if cash balances can’t meet redemptions. That can put pressure on the stocks the funds hold which then puts pressure on the NAVs creating a vicious circle.

    A lot of these funds hold more shares than the average volume of the stocks they hold so a redemption crisis can easily overwhelm the price of shares. Be very cautious when people tell you to buy funds because they are run by ‘smart’ money managers. They are run by the herd when the gun goes off

  76. Winston Munn says:

    I don’t know what Sentinal is. I don’t care what Sentinal does. All I know is the Sentinal news was BAD NEWS.

    6-months ago BAD NEWS was ignored and the markets plowed higher. Today, the markets dumped 200 points.

    Something has changed.