Posted on 09/18/2008 4:20:05 PM PDT by SeekAndFind
Most people say “flight to safety.” I just don’t think Treasuries are the definition of “safety.” Some people say “flight to quality.” I just don’t think Treasuries are the definition of “quality” when they represent the financial condition of this country with its deteriorating tax base, its overleveraged consumer, its increasingly unemployed workforce working in lower quality jobs, its devaluing real estate, its trade deficits, its budget deficits, its excessive government spending, its expanding and underfunded social programs, its expanding list of failed banks, its underfunded FDIC, its underfunded and reckless PBGC, its deteriorating Federal Reserve balance sheet, its nationalized financial system, its pathetically weak fiat currency…
But if you want to suggest that piling all your money into short term Treasuries is a “safer” bet than equities, I have to agree with you, for now.
However, when you look at the 3-month T-bill and see a whopping 0.02% yield today you have to be very careful. That’s the lowest level since WWII - not a good time if I remember my history. Whenever a trade gets this overcrowded, it doesn’t usually end well.
The “breaking of the buck” at the Reserve Money Market Mutual Fund is very troubling. I really respect Bruce Bent and not just because he started the Money Market Mutual Fund industry. If this can happen to him due to Lehman’s demise, you bet it can and will happen to others who do not have his ethics or experience. In fact, it has happened several times, but the sponsors were there to cover the losses (please reread Propping Up Money Market Mutual Funds from November 2007).
I suspect that some of these banks will not be able to keep that up forever and we will likely see some more buck breaking. A year ago, I shared my personal story about concerns over the quality of assets held in a money market mutual fund. Note that the ABCP and SIVs of last year and other risky assets held in some Money Market Mutual Funds are as crappy now as they were then. You can assess whether Treasuries with no yield are “crappy.”
If you have a MMMF with a yield in excess of 1.5% over the past days, weeks, and months, you really need to evaluate what is in there and decide whether a few extra basis points are worth the risk.
Furthermore, it’s going to be a big problem when the yield in MMMFs that hold almost 100% Treasuries (all that flight to safer stuff) have yields that are less than the expense ratio, even if the expense ratio is really low, like 0.50%. Check this Fidelity fund out as an example. A prolonged period of rates like we have now in the Treasuries will lead to some serious challenges, especially if the stock market keeps losing and being so volatile.
A week ago, I mentioned my declining bearishness in commodities and my recent UP signals in the two gold ETFs I cover (IAU and GLD). However, I never would have expected the massive move in gold Wednesday. Obviously, for those people that don’t like the “Flight to Safer” trade in Treasuries, gold was more appealing. Hopefully everyone realizes that gold is not safe. Just look at the recent decline and you’ll know that.
The slope of the massive move in gold and Treasuries is not sustainable, but only you can decide what is safe enough.
Gold! (well, that’s what all the commercials on FNC and talk radio tell me)
Fertile land and guns.
About three years ago I spoke with a friend who deals in antique guns at gunshows. He’s retired from the military and also from a stint with law enforcement so he has a decent retirement income which he has invested in a variety of places. At that time though, he claimed that his guns were making more money than all the rest of his investments.
Since then I’ve watched the values of various guns. Unlike stocks and bonds or T-bills, they’ve all maintained or exceeded their values at the time I started watching.
Now I know that everybody doesn’t have a vault or hardened storage room for a bunch of wood and steel, so guns might not be the best investment for them. Anything tangible though, will be safe. Be it guns or old cars or real estate or just gold and silver coins, as long as it can be touched and passed on to someone else it will maintain its value.
In the past few weeks precious metals have dropped in price. To assume they’ll stay at the low they’ve reached or even drop much lower isn’t reasonable in my opinion. Value is established by a number of factors but most notably by scarcity. Old cars are valuable because most of them have been melted down. Real estate is valuable because very little of it is being made anymore. Guns are valuable because government is always trying to keep them away from the citizens and precious metals are precious because they are scarce. Until the supply of any of those things is increased beyond the demand they will retain their value.
Notice that I said “retain.” While some things may actually increase in value, thus showing a profit on an investment, others may only hold their value relative to the dollar. Those should be considered as safeguards against total financial meltdown. If things get so bad no one wants your ‘53 Buick or can pay for it if they did want it it’ll just sit in storage and you won’t be able to buy beans with the money you didn’t get for it. On the other hand, you might be able to trade a couple of Silver Eagles for food or medicine. Even if the prices for necessities are inflated you’ll still need them - unlike the Buick.
I love Stienhardts book. It has a great lesson. When you don’t have a clue as to what is going on just go to cash. That said there have been a couple of great trades lately. Great.
Come on folks—think. The prudent things to do right now are: 1. Leave your investments alone. Most or all of them, up $500,000 or whatever, are protected. But most of all you do not lose money if you do not sell stocks for less than you paid. The market ultimately will fix itself—albeit with some loan money from taxpayers. 2. If you have some spare bucks around, this is a good time to buy some really good stocks at bargain prices. This is called opportunity.
Gold and Euros. Are there gold euros? ;-)
Seriously.
It appears to me the Fed is well rehearsed in how to manage every stage of this crisis. It’s like these guys are finally in the sh$t and they are loving it. Lifelong economic commandos, they finally get to see some action.
Seriously, they had this FTC styled bailout available all along. It was only after there was sufficient pain felt in the form of companies being taken out and shot that they felt like we had suffered enough. People lost jobs by the truckload in Manhattan but it kind of feels contrived. And now with this new mega bank ready to foreclose on these real estate deals, well clean up and move on. Kind of like a financial hurricane. But the Fed can seed the clouds and seemingly break it up at any time.
What’s Safe Now ? ( Where to Put Your Money in These Uncertain Times )
[They’ve really got me nervous. I just laid down a wad of cash to get a small fortune out of Nigeria and I don’t want to put it in a bank that can’t be trusted. What should I do? ]
I say relax. You have one of the better investments out there.
Or you can invest in my must hit business plan to sell one (just one) stick of bubblegum to every Chinaman. Think of the volume!
Mattresses have been the bank of choice for over 1,000 years.
Just remember to withdraw your funds prior to donating your bank to the Salvation Army.
Nigeria? Really? You're not one of those deposed Nigerian leaders who suddenly has a need to stash about $21 million into my bank account are you? If so .. just send out lots and lots of emails 'til you get a hit!
I was trying to think of something clever like that.
I invested in silver. Silver wrapped Hershey Kisses. Unfortunately, I seem to have eaten my nest egg.
Gold is still over 10% down from it’s highs.
On the other hand, it’s almost 10% up from it’s value in 1981.
A complete collection of baseball trading cards from 1981 appreciated much better than gold.
How about placing your money in farmland partnerships? I understand there is a pretty good ROE, but it is definitely a long term investment.
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