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.