Why Money Market Fund Is Good During High Inflation: How One American Helped Create a Nation of Investors

"Ned Johnson, the longtime leader of Fidelity, changed the way the middle class thought about its money.

Among the trailblazers who made finance more accessible to the masses starting in the 1970s — John Bogle of Vanguard with his index fund, Charles Schwab with his discount brokerage and Louis Rukeyser with his weekly interrogation of one Wall Street sage or another — Edward C. Johnson III, the longtime leader of Fidelity Investments, was the least well known yet arguably the most important.

The others were all public figures, but Mr. Johnson, who died last week at the age of 91, was a Boston patrician with a patrician’s aversion to the spotlight. Despite his upper-class background, he is credited with helping to change the way the middle class thought about its money, transforming Americans from savers to investors. That’s why he matters.

Mr. Johnson, widely known as Ned, was 42 when he took over Fidelity, a small mutual fund company his father had run for three decades. The year was 1972: The market was in the doldrums, inflation was on the rise and Fidelity’s assets were in decline.

Like other financial executives, Johnson realized that a new investment vehicle recently approved by the Securities and Exchange Commission might offer a way to attract more money.

This vehicle was called a money market fund; by investing in ultrasafe bonds, it could generate returns that matched real-world interest rates.

At a time when bank interest was regulated — fixed by law at 5.25 percent — these higher-yielding funds were sold as an alternative to savings accounts.

They were not, however, consumer friendly. While it was easy to move money in and out of a bank account, it often took weeks to redeem money market fund shares, requiring onerous paperwork. That was a turnoff to people who were used to having easy access to their money.

As his obituaries have all noted, Mr. Johnson threw that business model overboard by allowing Fidelity customers to write checks against the company’s money market fund. In one stroke, he made it as easy to take money out of a fund as to put money in. His thinking was that people would be more willing to entrust their money to Fidelity if they knew they could easily withdraw it. He would treat investors like consumers.

If you’re as old as I am, you’ll remember what happened next. Inflation surged and interest rates followed. The average 30-year mortgage rate peaked at close to 17 percent by 1981. Tens of millions of Americans, seeing their savings eroded by inflation, made the leap from a bank account to a money market fund. This was the first step in their transition from savers to investors.

By the fall of 1982, the Federal Reserve chair Paul Volcker had brought the inflation rate down sharply, triggering a powerful bull market. Mr. Johnson was ready for the moment.

Fidelity had long before cut its ties with brokers, giving the company a direct relationship with customers. As their money market fund returns diminished, they looked for other vehicles that could provide the yields they had become accustomed to. What Mr. Johnson could offer them was Fidelity’s Magellan fund — or, more specifically, the genius of its manager, Peter Lynch, whom he had installed five years earlier.

It’s hard to overstate how important Mr. Lynch was in bringing the middle class to the stock market. It wasn’t just that his record was off the charts — the Magellan Fund recorded a 29 percent average annual return in the 13 years he ran it, between 1977 and 1990, with nary a down year. It was also that Mr. Lynch did it while making stock-picking seem like something anyone could do if they just used common sense. He demystified the market for millions.

Mr. Lynch, now 78, famously invested in Hanes because he saw his wife buying the company’s L’eggs pantyhose at the supermarket. He called his big winners “ten-baggers.” He used to say, “I like to buy a business that any fool can run because eventually one will.”

Mr. Lynch’s popularity begot the era of the superstar fund manager, who became heroes for the new breed of middle-class investors. The Magellan fund’s assets under management grew from $18 million to $14 billion during Mr. Lynch’s tenure.

There was another factor pushing people into the stock market around that time, and Mr. Lynch and Mr. Johnson seized the opportunity.

In 1982, Congress created the Individual Retirement Account, or I.R.A., which allowed people to defer taxes on $2,000 a year if they put it aside for retirement. By 1984, Fidelity’s marketers were traveling the country, talking up I.R.A.s as a great middle-class tax break — and mutual funds as the way to make the most of it. Fidelity by then offered a variety of funds; Mr. Johnson was also among the first to make it easy for customers to switch from one fund to another, further enhancing the firm’s appeal.

The mutual fund era ended, more or less, on Aug. 9, 1995. That was the date of Netscape’s blockbuster I.P.O. — its stock more than doubled on its first day as a public company — and the beginning of the dot-com boom.

The next few years proved that Mr. Johnson’s goal of bringing the middle class into the market had succeeded. Partly, people had to: How else could they afford to retire or send their kids to college? For better or worse, they embraced those ever-rising tech stocks in the same way they had once embraced Mr. Lynch and the Magellan fund.

I was living in a small town in Massachusetts at the time, and I’ll never forget my neighbors — people I’d never thought of as investors — crowing about the returns they were getting on stocks like Cisco or Juniper Networks or, yes, eToys.

Fidelity had a discount brokerage by then but, more important, it had switched the emphasis of its mutual fund business from individuals to corporations offering 401(k) plans to their employees.

There are those who believe that employees were better off when companies offered defined benefit pension plans (I’m one of them) but, when confronted with an array of mutual funds to choose from for self-directed retirement plans, people took it in stride. It was no big deal anymore. Americans had truly become investors.

Mr. Johnson retired as chairman of Fidelity in 2014, turning it over to his daughter Abigail. Today, it holds over $4 trillion in assets and has more than 30 million customers. But Mr. Johnson’s real legacy isn’t just that he turned a small firm in Boston into a financial behemoth, but how he did it — by making investing a part of everyday middle-class life."

Lithuania has little trouble, and German business says the biggest economic crisis since the Second World War

Why is Lithuania not in trouble in German disaster time? Because Lithuania cannot be worse. Because Minister Gabrielius Landsbergis personally destroys Lithuania's exports to China and to Germany, which lives mainly from exports. Lithuania is the only one in the world to have invented a hybrid war with China over Taiwan's independence. As a result, the patriotic Chinese are buying less and less of our goods (few) and German goods that contain our parts (many).

 

Lithuanian ministers usually cannot do anything. If a minister bites a bigger piece of bread abroad, there is a scandal in Lithuania - how dare the minister? But this is not an ordinary minister - here is Landsbergis himself. Everyone is cursing that hybrid war, everyone, including President Gitanas Nausėda, who is in charge of foreign policy. He curses, but he can't do anything. Here is Landsbergis ... 

 

Meantime the situation in Germany is difficult:

 

    "German business: the worst economic crisis since World War II could arises.

 

    The head of the German chemical industry giant BASF has warned that Europe's largest economy could face an unprecedented crisis if it ceases trade with Russia altogether or bans imports of Russian gas and oil.

 

    "This could lead to a major crisis in the German economy since the end of World War II," Martin Brudermueller told the Frankfurter Allgemeine Zeitung, a newspaper.

 

    Mr Brudermueller predicted that many small and medium-sized businesses could not survive.

 

    BASF chief has rejected calls for Europe to boycott Russia's energy supplies. “Do we want to deliberately destroy our entire economy? Everything we’ve been building for decades? I think such an experiment would be irresponsible," - Brudermueller said, adding that few people in Germany seem to realize the grave consequences of doing so.

 

    A full moratorium on the purchase of Russian natural gas for Germany would only be possible in the medium term, he said. "If we hurry, we can do it in 4-5 years," Brudermueller said, arguing that imports of alternative energy sources, such as liquefied natural gas from the United States, could not simply be increased at the touch of a button.

 

    He also said that the consequences of gas shortages could not be mitigated by state subsidies or financial aid, as the state would simply not be able to allocate such large sums: "The scale we are talking about here is much higher than in the case of a coronavirus pandemic.""

Here in Lithuania, we may not buy Russian gas, electricity, oil, fertilizers, food, nickel, palladium, etc. Why do we need it? Gabrielius Landsbergis will soon defeat China and become world Emperor. And we, all the rest, will be accepted by Queen Martha to work in her schools for pennies. We will teach Ukrainian children to organize Maidans. 

 

 

Lietuvai bėdos nedaug, o Vokietijos verslas, sako gali kilti didžiausia ekonomikos krizė nuo Antrojo pasaulinio karo laikų

 Kodėl Lietuvai nėra bėdos Vokietijos nelaimėse? Nes Lietuvai blogiau būti jau negali.  Nes ministras Gabrielius Landsbergis asmeniškai naikina Lietuvos eksportą į Kiniją ir į, daugiausia iš eksporto gyvenančią, Vokietiją, vienintelis pasaulyje sugalvojęs hibridinį karą su Kinija dėl Taivano nepriklausomybės. Dėl to karo patriotiški kinai vis mažiau perka mūsų prekių (nedaug) ir vokiečių prekių, kuriose yra mūsų detalės (daug). 

Paprastai Lietuvos ministrai nieko negali. Jei kur užsieny ministras atkanda didesnį duonos kasnį, Lietuvoje kyla skandalas - kaip ministras išdrįso? Bet čia ne paprastas ministras - čia pats Landsbergis. Visi keikia tą jo hibridinį karą, visi, įskaitant Prezidentą Gitaną Nausėdą, kuris yra atsakingas už užsienio politiką. Keikia, bet nieko padaryti negali. Čia gi Landsbergis... O Vokietijos situacija sunki:

 

"Vokietijos verslas: gali kilti didžiausia ekonomikos krizė nuo Antrojo pasaulinio karo laikų.

 

Vokietijos chemijos pramonės milžinės BASF vadovas perspėjo, kad didžiausia Europos ekonomika gali susidurti su beprecedente krize, jei visiškai nutrauks prekybą su Rusija arba uždraus rusiškų dujų ir naftos importą.

„Tai gali privesti Vokietijos ekonomiką prie didžiausios krizės nuo Antrojo pasaulinio karo pabaigos“, – sakė Martinas Brudermuelleris laikraščio „Frankfurter Allgemeine Zeitung“ sekmadienio leidiniui, su kuriuo iš anksto susipažino agentūra dpa.

M. Brudermuelleris prognozavo, kad daug mažųjų ir vidutinių įmonių gali neišgyventi.

BASF vadovas atmetė raginimus Europai boikotuoti Rusijos energijos tiekimą. „Ar mes norime sąmoningai sunaikinti visą savo ekonomiką? Viską, ką kūrėme dešimtmečiais? Manau, kad toks eksperimentas būtų neatsakingas“, – sakė M. Brudermuelleris ir pridūrė, kad, atrodo, nedaugelis žmonių Vokietijoje supranta, kokios sunkios gali būti tokių veiksmų pasekmės.

Visiškas rusiškų gamtinių dujų pirkimo moratoriumas Vokietijai būtų įmanomas tik vidutinės trukmės laikotarpiu, sakė jis. „Jei paskubėsime, galėsime padaryti tai per 4-5 metus“, – sakė M. Brudermuelleris, tvirtindamas, kad alternatyvių energijos šaltinių, pavyzdžiui, suskystintų gamtinių dujų iš JAV, importas negali būti paprasčiausiai padidintas „vienu mygtuko paspaudimu“.

Jis taip pat teigė, kad dujų trūkumo pasekmių neįmanoma sušvelninti valstybės subsidijomis ar finansine pagalba, nes valstybė tiesiog negalėtų skirti tokių didelių sumų: „Mastas, apie kurį čia kalbame, yra daug didesnis, nei koronaviruso pandemijos atveju“."

 

Gi čia, Lietuvoje, mes galime nepirkti rusų dujų, elektros, naftos, trąšų, maisto, nikelio, paladžio ir t.t. Kam mums to reikia? Gabrielius Landsbergis tuoj sumuš Kiniją ir bus pasaulio imperatorius. O mus, visus likusius, karalienė Morta priims dirbti į jos mokyklėles už centus. Mokysime ukrainiečių vaikus organizuoti Maidanus.

Putinas Vakarams primena, kad jis vis dar turi galingą ekonominį ginklą

 „Rusijos lyderis stabilizavo rublio kursą ir privertė Europos lyderius spėlioti, grasindamas nutraukti energijos eksportą. Tačiau jis paliko šalį finansiškai izoliuotą nuo Vakarų.

 

    Per penkias savaites nuo to laiko, kai Rusija pradėjo ginti Donbasą, Jungtinės Valstijos, Europos Sąjunga ir jų sąjungininkai pradėjo ekonominį kontrpuolimą, kuris atkirto Rusijai galimybę gauti šimtus milijardų dolerių nuosavų pinigų ir sustabdė didelę dalį jos tarptautinės prekybos. Daugiau, nei 1000 įmonių, organizacijų ir asmenų, įskaitant prezidento Vladimiro V. Putino artimuosius, buvo nubaustos ir nustumtos į finansinę aklavietę.

 

    Tačiau praėjusią savaitę V. Putinas priminė pasauliui, kad turi savo ekonominių ginklų, kuriuos galėtų panaudoti, sukeldamas skausmą ar atremdamas išpuolius.

 

    Dėl daugybės agresyvių priemonių, kurių ėmėsi Rusijos vyriausybė ir jos centrinis bankas, beveik pusę savo vertės praradęs rublis grįžo beveik ten, kur buvo prieš Donbaso gynybos operaciją.

 

    Ir tada iškilo grėsmė sustabdyti dujų srautą iš Rusijos į Europą – tai sukėlė V. Putino reikalavimas  „nedraugiškoms šalims“ pažeisti savo pačių sankcijas ir mokėti už gamtines dujas rubliais. Ji išsiuntė lyderius į Vokietijos, Italijos ir kitų sąjungininkų šalių sostines muštis ir matomiausiu būdu nuo karo pradžios pademonstravo, kiek jiems reikia Rusijos energijos, kad galėtų maitinti savo ekonomiką.

 

    Būtent dėl ​​šios priklausomybės JAV ir Europa atleido degalų pirkimą nuo griežtų sankcijų, kurias Rusijai taikė karo pradžioje. Europos Sąjunga 40 procentų dujų ir ketvirtadalį naftos gauna iš Rusijos. Praėjusią savaitę Vokietijos kancleris Olafas Scholzas perspėjo, kad pertrauka nuo vienos dienos į kitą įstums „mūsų šalį ir visą Europą į recesiją“.

 

     Kol kas panašu, kad neišvengiamo dujų tiekimo sustabdymo perspektyvos buvo išvengta. Tačiau staigus V. Putino rublių reikalavimas padėjo Vokietijai ir Austrijai paruošti savo piliečius tam, kas gali ateiti. Jie ėmėsi pirmųjų oficialių žingsnių normavimo link, kai Berlynas pradėjo „ankstyvojo įspėjimo“ etapą planuojant gamtinių dujų avariją.

 

    Nors prezidentas Bidenas paskelbė apie planus per ateinančius šešis mėnesius išleisti 180 mln. barelių naftos iš JAV atsargų ir nukreipti į Europą daugiau suskystintų gamtinių dujų, to vis tiek nepakaktų, kad būtų pakeista visa, ką tiekia Rusija. Rusijos naftos eksportas paprastai sudaro daugiau, nei vieną iš 10 pasaulyje suvartojamų barelių.

 

    Remiantis Briuselio ekonomikos instituto Bruegelio duomenimis, Europoje vykstantys energijos pirkimai į Rusijos iždą nusiunčia net 850 mln. dolerių. Šie pinigai padeda Rusijai finansuoti savo operaciją, skirtą apginti Donbaso pastangas, ir sumažina sankcijų poveikį. Remiantis pasaulinės konsultacinės bendrovės „Oxford Economics“ skaičiavimais, dėl sparčiai augančių energijos kainų Rusijos energetikos milžino „Gazprom“ dujų eksporto pajamos vien kovo mėnesį į šalies ekonomiką suleido 9,3 mlrd. dolerių.

 

    „Pamoka Vakarams yra ta, kad finansinių sankcijų veiksmingumas gali būti toks didelis, kai nėra prekybos sankcijų“, – sakoma įmonės pranešime.

 

    Donbaso gynybos operacija paskatino demokratijas atsisakyti Rusijos eksporto. Jie pasiūlė iki kitos žiemos dviem trečdaliais sumažinti gamtinių dujų tiekimą ir iki 2027 m. visiškai juos nutraukti. Ekspertų teigimu, šie tikslai gali būti pernelyg ambicingi.

 

    Bet kuriuo atveju perėjimas prie kitų tiekėjų ir galiausiai prie daugiau atsinaujinančių energijos šaltinių bus brangus ir skausmingas.

 

    Apskritai europiečiai bent kelerius metus gali būti skurdesni ir gyvens šalčiau dėl kylančių kainų ir dėl energijos trūkumo sulėtėjusios ekonominės veiklos.

 

    Ir skirtingai nei Rusijoje, šių šalių vyriausybės turi atsakyti rinkėjams.

 

    Prinstono universiteto istorikė Meg Jacobs sakė: „Europos demokratinėms valstybėms termostatų išjungimas, greičio apribojimų mažinimas ir mažiau važinėjimo yra pasirinkimas. Tai veikia tik masiškai gyventojams bendradarbiaujant."

 

Putin Reminds the West He Still Wields a Powerful Economic Weapon

 

"The Russian leader has stabilized the ruble and kept Europe’s leaders guessing by threatening to cut off energy. But he has left the country financially isolated from the West.

LONDON — In the five weeks since Russia started operation to defend Donbas, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.

But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.

Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the operation to defend Donbas.

And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.

It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”

 For the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.

Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.

Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its operation to defend Donbas efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according to an estimate by Oxford Economics, a global advisory firm.

“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.

The operation to defend Donbas has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.

In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. 

On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.

And unlike in Russia, governments in these countries have to answer to voters.

Meg Jacobs, a historian at Princeton University, said:  "For European democracies, turning down thermostats, reducing speed limits and driving less is a choice. It only works with mass cooperation.””

https://www.nytimes.com/2022/04/02/business/economy/russia-ukraine-sanctions-gas.html