I pretty much lost all of Sunday to the fire department so not much of a blog post today so I can catch up. However, there was one question left yesterday that I can write something on pretty easily.
A reader (correctly) assumed that I have an overweight in cash and asked what I was doing since money market yields are so low. He asked me about Internet banks which apparently are yielding a little more than money markets (per the reader).
My initial reaction is to ask do you really want to chase after yield now? Really? Isn't that the same speculative spirit that contributed mightily to creating the financial crisis? You can't get a 3% yield in a 0% world without taking risk. Based on where we are now do you really want to allocate part of your risk budget on a potentially complex (or desperate) financial instrument?
As for the fire department we had a motorcycle accident around 7:45 am and then I was gone for about five hours for a small, but incredibly difficult to reach, fire. We had to park and bushwhack in a couple of very steep hills and then fight the fire on a very steep hill. My only task was as part of the hand crew to scratch out a fire line up the right flank. It really was not much of a fire but the hike in and then back out with some line work in between was a great workout.
Wikinvest Wire
15 comments:
I agree with you, going after yield on cash is crazy. People will argue if it is FDIC insured who cares, but the FDIC can take years to pay you back if they choose with zero interest. That is the least likely choice they like to have another bank take over a failed bank, but do you want to be without your cash for a year or two?
I like treasury money market funds right now for cash. But I think my cash levels will be decreasing from already low levels.
If you do not pay attention this rally will become a bull market. Just wait until everybody realizes that and see what happens to equities.
I have all my cash invested in back support for when I sleep and dog food for my 4 German Shepherds (Bitey, Psycho, Malice and Satan).
"but the FDIC can take years to pay you back if they choose with zero interest."
While possible, this has never happened and is highly unlikely in the future. If the FDIC started taking years to pay people back, people would run on the banks which is what the FDIC is designed to prevent.
Roger,
Please remember not to post tour de France race results until the next day. I like to watch on my dvr like it is live at night and your such a sports nut you follow every sport.
Thanks
Your saying the FDIC has never taken years to pay people back is in contradiction to articles I have read. I have read it is very rare but has happened when they could not get another bank to buy the failed bank. If memory serves me correctly everyone was given access to a small amount of money and had to wait for the rest.
Even if my memory on the article is faulty do not think they would not give everyone access to 25k and make people wait a year or two on the balance of 250k if the stuff ever hits the fan.
Trust me that is when you want a treasury money market fund because there will be once in a life time bargains available to those with cash.
I am not predicting the end of civilization, but I do expect some fantastic opportunities presenting themselves in the next 10 years. But right now I see a rally based on the current band aids the federal government is using to FIX things.
FDIC has never taken years to pay people back is in contradiction to articles I have read.
Sources? Links? I'd like know what circumstances that has happened, because the thought of having my business's payroll account locked for months or years is truly frightening.
I hear good things about auction rate securities - good rates, safe and liquid. Hard to go wring with that!!
i believe that the 10:37 comment is intended as sarcasm, least i hope it is.
Has anyone investigated Trust preferred securities or exchange traded debt securities. In general, the securities are institutional preferred and debt securities that have been purchased by a third party (a major brokerage firm) on the open market and repackaged for sale to individual investors in $25 or $10 denominations. Maybe I'm taking a risk chasing yield, but you can get 6.5% to 8% yield on debt issued by companied like Walt Disney, GE, Federal Express, etc.
Roger,
We are planning on introducing a new feature on ModernGraham - Finance Blog of the Week - and I'd like to feature Random Roger as the first Blog of the Week. Please contact me as soon as possible as I have some questions for you.
ben AT moderngraham.com
"fantastic opportunities presenting themselves in the next 10 years"
Does that mean the DOW at 6500? 3500? 2500?
This will only be a great buying opportunity....if the world continues on the the same cyclical path as in the past. Don't count on the U.S. as being a leader in the future.
I've been otherwise putting my money market cash in PIASX. Thus far the NAV has been very steady and the yield is just under 3%.
"Does that mean the DOW at 6500? 3500? 2500?"
That depends on a lot of things including how much the fed monetizes the debt. Kinda hard to predict.
But lots of correlation and lots of opportunities here and abroad.
Even if the FDIC locked up a lot of money for only 60 to 90 days while waiting on approval of additional funds from congress. That would be the time to buy bargains during a crisis
anon 11:10--I own a couple of exchange traded debt securities. As you point out, the yield is quite good, especially if you have the stomach to buy them when they dip. My issues have been very volatile--something that I didn't expect--and the rating agencies seem to change their minds with some regularity. Nonetheless, I've held on through the Big Event and continued to collect nice quarterly dividends.
My cash is 40% Chinese Yuan, 40% Gold, 40% Swiss Franc, -20% USD.
The key today is not the yield that you get on your cash but in what form that cash is held.
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