Quarterly Commentary

: 2009 - The Year in Review

As we look forward to what is on the 2010 horizon, it is imperative we take a look back at the events of the past year, and what a year it was!  Many events took place that affected the money market industry, but the recession and an impending regulatory overhaul had the most impact. 

We began 2009 with the economy in turmoil.  Approximately 741,000 jobs were lost in January alone, the highest in any month of this past year.  Although the job loss rate decreased from that point, the unemployment rate continued to increase each month throughout 2009 and now stands at 10%.  In addition and as expected, first quarter 2009 Gross Domestic Product (“GDP”) was down 6.4%. 

The government stepped in with another $787 billion stimulus package in February in addition to providing ample market liquidity through various programs created by the Treasury Department.  The stimulus package, along with Cash for Clunkers and the First-time Homebuyers credit programs, helped to spur economic growth, evidenced by 2.2% GDP growth in the third quarter.  In addition, the excess liquidity helped to stabilize and eventually produce a much needed thaw in the once frozen credit markets. 

Given the financial meltdown and subsequent government bailouts, the financial markets braced for excess government scrutiny during 2009, and money markets were not exempt from this attention.  In June, the SEC proposed changes to liquidity, maturity, and credit quality requirements, as well as other rules that govern money market funds.  These changes were proposed so as to prevent a money market fund from ever again “breaking the buck”.  Formal rule changes are anticipated in the first quarter of 2010, and regardless of the issue date, Reich & Tang will be able to comply with the new rules in a timely fashion. 

Looking forward, we are beginning to see signs that the economy is on the right track. Data suggests that jobs will be created, instead of lost, sometime in the first half of 2010.  With consumer confidence starting to come off its lows of 2009, GDP should continue to grow slowly. While it is going to take some time, and while the economic data will not always be positive, we do expect the economy to continually improve throughout the year.  As a result, we anticipate the Federal Reserve will start to raise rates slowly in the second half of 2010, which would be a much needed boon to savers.