Auction Rate Securities Problem Ends As It Began - quietly

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Without great fanfare, this problem has begun to wind down.

For me, the auction rate security problem was the cause of many sleepless nights.  In the middle of February, my broker suddenly let me know that all of my cash which he had advised me to move into auction rate securities over the last several years, was illiquid until further notice.  He told me that the auctions had failed and that I would be getting higher rates to compensate me for my loss of liquidity.  He could not assure me when I would get out of these bonds which led to many sleepless nights as I needed the liquidity.

As the months rolled by, the excuses mounted, as did the obvious and clear indicators of impropriety on the parts of all of invvestment banks (see some of the earlier acticles posted by me and others on BestCashCow.com).   Little by little, one by one, many of these things got called away.  It started with the municipal and state issues that did not want to, or could not, pay the heavy default rates, and earlier this month, some of the major financial institutions that use auction rate preferreds to leverage their portfolios, including Nuveen, finally gave into the court of public opinion and got rid of theirs.

I understand that Pimco and Blackrock still have not agreed to refinance or refund the holders of their crooked issues.  Folks at these organizations should be ashamed that they are continuing to force investors to be illiquid so that they can get higher returns.  I believe that they soon will come under pressure to get rid of their auction rate preferreds, leaving these instruments to be a remnant from 2008.

 


Treasury Yields Fall, Market Tanks and Only Cash is Safe

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Markets are tanking. This is a terrible time to be invested.

Stock markets are just beginning a long decent.

Commodities have done well, but that has been largely driven by hedge funds.  The funds will now sell to preserve gains (cover losses from equity markets).  There will be a cascading effect across all commodity classes which will be exascerbated by a global market decline.

Inflation is spiraling out of control.  The Fed is not addressing it, and now looks increasingly unlikely to do anything.  Treasury yields on 2 year, 5 year and 10 year Treasuries have fallen by 30 bps over the last week.  Your cash will earn less now in spite of inflation.

Cash is still the best place to be for the moment.  I think investors though should be jumping on some of the short term CD offerings before they go away (one year or less is my preference).  These rates are being held at these levels as banks compete for deposits, but they are unlikely to stay there now as we head into a deep, deep recession.

These are scary times folks.  It is OK to run for cover.

Check current savings rates here.

 

 


Everbank Money Market Rate to 4.76% intro APY and 3.51% Ongoing

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Everbank raised the rates on its money market and savings accounts today, continuing a general bank trend of rising rates.

Everbank raised the rates on its money market and savings accounts today, continuing a general bank trend of rising rates.  The Money Market intro rate increased from 4.01% APY to 4.76& APY.  This is a three month guaranteed intro rate.  After that, the rate falls to 3.51% APY, which is still pretty competitive and puts it at the top half of the BestCashCow savings and money market rate tables.

The balance on their FreeNet Checking Account also increased from 4.01% APY to 4.76% 3 month intro APY with a continuing rate currently at 3.51% APY.  

As we've mentioned before, the three month guaranteed rate is a great alternative to a 3 month CD.  The money is liquid and it rolls over to a competitive rate.  


Deseret Money Market Account Up to 3.53% APY

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Rates are on the rise. Deseret Bank has raised the rate on its Deseret Money Market account to 3.53% APY.

Rates are on the rise. Deseret Bank has raised the rate on its Deseret Money Market account to 3.56% APY. The rate is competitive and is within the top 10 yielding money markets. The account is also competitive with a mimimum balance requirement of only $1000.

For more details on the bank and the rate see a good post on Bank Deals.


SmartyPig $100 Gift Card Giveaway on Twitter

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SmartyPig is running a second $100 Gift Card Giveaway Using Twitter. Answer a question and you might be selected to win the dough.

SmartyPig, a social networking piggybank is running a small promo on Twitter where you can win one of three $100 gift cards.  The contest happens tomorrow, June 12.  Here's how it works:

  1. Follow SmartyPig on Twitter
  2. They’ll ask the $100 question on Thursday, June 12th.
  3. Answer the question.
  4. Tune in to their Blog to see if you have won.

How are they picking the winner?

Below is what they have to say:

This is how we’ll choose the winners:

  1. After 10 minutes, we will be picking 20 random people with a number generator from the pool of correct answers.
  2. We will then pin those 20 names into the 20 slots of a dartboard.
  3. While blindfolded, we will throw darts and three lucky winners of a $100 SmartyPig gift card will be chosen.
  4. We’ll post the process here on our blog, so everyone can see it!

Good luck!

 

 


Are all US Government Money Market Funds Created Equal?

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Here is why they are not.

For those with too much money to run around and try to open FDIC-insured accounts at all of the highest-paying online savings accounts, money market accounts are the best way to protect your money.   These funds are not foolproof and in a real economic crisis where the underlying assets decline in value dramatically or default, money market funds could and have lost value.

Currently, the best money market rates on this site are paying just under 3%.

I have a friend who is convinced that we are headed towards a credit crisis of epic proportions and who is willing to get a lower return  by investing in so-called US government money market funds.  These are money market funds that invest only in US government securities and therefore have all of their assets backed by the full faith and credit of the US government.  They are presumably still safer than (or at least as safe as) municipal money market funds discussed on this website, but have a higher return (offset, at least to some degree, by the absence of the positive municipal tax attributes).

Currently, I understand that the the best rate of fthe US government money market funds is approximately 2%.

My friend recently discovered that these funds aren't as safe as he had thought when he opened the prospectus for a Western US government money market fund that he had invested in.  It turned out that this fund, which was being hawked by certain large investment banking firms, has large exposure to government agencies such as Freddie Mac, Fannie Mae and even Sallie Mae. 

Why get 2% return to take risk that is probably as great as those taken in a standard money market fund?

If you invest in a US government money market fund, you should be especially careful in the current environment to invest only in a fund that buys US Treasuries, not these risky agency bonds.