1. Keep it the bank as long as its under $100,000. If you are using an online bank call and make sure that its FDIC insured. Call your bank and confirm it if it helps you sleep well.
2. Buy Treasuries! Buying them through Treasury Direct is one of the easier ways to do it. Here is the link to their site. Treasuries are guaranteed by the US government.
3. Buy ticker symbol (SHY) if you are looking for a safe bet that has a little higher return. The yield here is around 3%. This is an ETF that holds almost 100% treasuries.
4. Keep a little cash at home. The pigmen can't take it from you if its in your hands! I only advise doing this because as this banking crisis worsens, the banks may be shut down for a period of time. This happened during The Great Depression. You don't want to be stuck without cash if the ATM'S are shut down for a period of time.
Bernanke Changes His Tune
Well we heard a lot from him today didn't we? He looked very nervous to me as he sat there answering questions. I thought his change on the outlook for the economy is significant and positive. Here is a nice highlight from Bloomberg on today's testimony:
"Bernanke Abandons Assessment of Lessening Growth Risk (Update3)
July 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke abandoned his June assessment that the threat of an economic downturn had diminished, telling lawmakers that growth and inflation risks are increasing.
There are ``significant downside risks to the outlook for growth,'' and ``upside risks to the inflation outlook have intensified,'' Bernanke said in semiannual testimony on the economy to the Senate Banking Committee in Washington.
Bernanke's shift reflects renewed turmoil in markets that forced the Treasury and Fed to mount a rescue of Fannie Mae and Freddie Mac this week. He said that stabilizing financial markets remains ``a top priority,''
In new forecasts, Fed officials raised their projections for economic growth and inflation for this year, while reiterating their outlook for faster growth in 2009.
Fed governors and district bank presidents now see the economy expanding 1 percent to 1.6 percent this year, up from 0.3 percent to 1.2 percent in their April outlook. Consumer prices will rise 3.8 percent to 4.2 percent this year compared with a projected range of 3.1 percent to 3.4 percent in April. The economy should expand at a 2 percent to 2.8 percent rate in 2009, identical to the April forecasts.
``The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power,'' Bernanke said.
American households foresee average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to the Reuters/University of Michigan survey.
`Temporarily Higher'
``Inflation seems likely to move temporarily higher in the near term,'' Bernanke said.
Traders see a 59 percent chance of an increase to 2.25 percent or higher by the end of the year, based on futures prices. "
Final Take:
Ben did a big U turn on inflation risk today. I guess it took $145 oil and a consumer spending dropping like a rock in June for him to realize that inflation is stopping the economy dead in its tracks. This is a significant change in policy and a positive one in my view.
This pretty much guarantees that we will be seeing higher interest rates coming out of the Fed if the recession doesn't push prices down far enough. Without a strong dollar, I don't see how prices recede to a level that the Fed is comfortable with. As a result, expect future hikes from the Fed.
The days of easy money are gone boys and girls! Interest rates will be a headwind for years to come versus the tailwind its been since the mid nineties. This will dramatically reduce the ability for financial firms to make profits. Higher rates will also dramatically lower the value of all assets. Gee, do you think this might hurt housing?
Bottom Line
Be careful out there. The market is really rough right now and highly unpredictable as the Fed scrambles to save the financial markets. Today has been a perfect example of this. We have zigged and zagged all day long today due to rumors, sticksaves, and fear.
If you dabble in the market, keep your position's (long or short) small.
Cash is the place to be until this Freddie/Fannie disaster gets straightened out.
18 comments:
*Excellent* summary, Jeff. Absolutely first class.
I totally agree about keeping some money at home. If you have kids, spouse - or even just give a damn about yourself - you need to keep $1000 somewhere to protect yourself (maybe more). Great point.
I also noticed 'Bananas' Bernanke looking a little shell-shocked. While I realize he's in a tough position - and I totally agree on your observations on this recently - he must be seeing that this situation is significantly worse than he thought. This is inexcusable since you and I saw this problem and we're not senior government economists earning multi-$$$.
I think we can officially say the market has no direction now. The optimist in everyone wants to believe the best, but the fires are everywhere. GM just really screwed themselves on the 20% paycut thing too... Jesus, Jeff, someone needs to hire one of us to fix this crap.
Minton
Thanks! Great points.
Yeah we have been talking about this for months haven't we?
Its amazing and frightening to actually watch it happen. To tell you the truth I am scared ****less right now.
I see no answers to our problems other than grinding through it for several years as we work of the excesses of the debt bubble.
The housing bubble is making the tech crash look like a bull market...lol
I have a feeling fixed income investing will be the way to go for the next several years especially as interest rates start rising.
Getting a potential 6% return on bonds a year from now as rates rise is going to look like a hell of a deal when your other option is the stock market.
J6pack will want nothing to do with equities after this crash takes most of their investments.
The times are a changin!
Here's another piece of advice...do what I do, invest in ammo.
The
The way we are headed its not a bad idea! Don't forget the gold. Guns and gold is the worst case scenario.
I still have hope that we won't get to that point.
Did anyone see Fannie's CEO get interviewed on CNBC after hours?
He looked like he had seen a ghost! He refused to answer any hard questions.
When asked why someone should buy their stock he really didn't give an answer.
He just kept saying the regulator's concluded that we have no capital issues and they will raise capital if they need to.
I trust the regulators about as much as I trust a realtor.
They have no way of raising capital going forward. They have already raised capital twice. These investors were then rewarded by being bent over.
How do you think those investors feel with a $7 stock price.
There is no chance they will take a third shot at investing capital in these two bloated pigs.
This was a poor interview by the CEO and he probably made things worse after showing such a lack of confidence in his company.
I laughed when Ben declared last months that things were improving. I can only guess that someone needed a temp really before it got even worse.
Keep in mind that Ben is just a figure head, he is directed by a group of banks that comprise FED, so he does what they tell him to do.
The 'keep cash at home' option and the possibility of limited access to bank accounts arouse my curiosity. I'm betting that most people don’t hoard much cash at home. If so, then any imagined scenarios where cash has been given primacy has to be one where the VISA/MasterCard transactions are not honored. Assume that the ‘cash-on-hand’ population is very tiny...or are wary about spending money on the 1st day of the crisis.
In such scenarios, all retailers would face incredible daily losses (of sales) within the 1st 4 hours. The dreadful prospect of a full day with no credit card sales would compel quick-footed stores to furlough cashiers and clerks by noon to stop the hemorrhaging. By 5pm, most retailers will be reacting via furloughs. Beyond lost profits, many places would not want the headache/hazards caused by excess cash from cash-wielding customers; I see gas stations choosing to close for the day rather than deal with the nightmare of an office full of cash. Either way, the sytemic crash of American retailing would be in hours, not days.
I would suspect that massive federal intervention would occur between 5pm of the 1st day and the opening of business the next day.
I'd think this would move very quickly...within hours...to a resolution or to a problem in which having 'cash in the house' is rendered irrelevant.
Does anyone have the average level of daily credit card transactions and the number of Americans employed as cleks, sales staff, and stock boys?
Bottom line: I dont think WalMart, Target, major grocery chains, and gas staions would open if they thought they'd have to deal with cash exclusively. American retailing has lost the logistical & store management ability to operate off of cash. I think this will be communicated to the Administration far ahead of such a crisis.
Let’s discuss.
The key point I'm making is that such a large percentage of workers are in retail that their furloughing would trigger a cascading, rippling downward economic spiral measured in hours, not days.
Great comments here, everyone...
Just to let you know, Texas gun applications are up 50% this year so far and now take 6 months to process. Interesting, right?
great points everyone
I really enjoy all of the insightful thoughts that I see on here.
Minton
Thats unbelievable. Are we going back to the wild wild west?
Baltimore is the #2 in murders. Looks like I am staying out of the city!
Avl
I never really thought about the ripple effect of an all cash scenario.
This would cause big time disruptions. We are addicted to those credit cards.
Everyone needs to pay off debts because the banks interest rates on this debt are going to go through the roof!
Art
Bernanke was frickin pathetic today. The Fed is like a good ole boy network of pigmen.
He will destroy the country with inflation just to save his banking buddies! You are right on. He was a total figure head today.
Kudlow was even blasting him tonight for not protecting the dollar. Anyone see the PPI today? running at over 10% annually.
How in the hell will anyone have any money to pay for anything at this rate. Salaries are flat. At least in the 70's we had wage inflation as the unions were able to increase salaries.
Exact opposite today. Perfect scenario for an economic disaster.
If Bernanke doesn't defend the dollar soon we are doomed economically.
Jeff, the only thing that I would (respectfully) add is that credit cards are NOT going through the roof.
Why?
Because they already have done. The govt/Fed signaled to these a-holes long ago that bad news was coming. All the rate increases have already happened!!
Otherwise, totally agree. What a great thread here today - from everyone - really. Shocking times.
By the hour I’m more convinced that the’cash only’ era in a crisis will last less than a day or two before the gov’t takes extraordinary measures related to our credit card/debit cards or equivalents. The following sectors can't run on a cash basis, and can't extend credit to customers, or would have a devil of a time doing so:
hotel chains, restaurant chains, big box retailers, gas stations, chain pharmacies and drug stores, car rental companies. Airlines will fly but will probably halt new reservations.
There will be a run on gas and as was disclosed during Hurricane Rita in 2005, every driver can't fill up with gas because the US gas distribution system has on hand at any moment only the equivalent of about a gallon per car.
I don’t think this is news to the key emergency personnel in government.
Which ever way a cascading bank run debacle starts & unfolds, I think these will be top priorities for being prepared:
1. 4-5 days of food
2. A weeks of critical medications/pills
3. Full tank of gas in each vehicle (and a siphon and gas tank to share ur surplus with unprepared loved ones).
4. Mediation tools such as bottles of liquor (good for bartering as well as tranquilizing jittery family members/neighbors. I’m serious, liquor will be important...and it disinfects too.
That should get people thru the initial period of craziness in the event a bank runs causes mass furloughs, store closures, and gas station closures within the initial 4-5 hours. I’d expect federal emergency measures to kick in by that midnight that will allow fair access by all to groceries and medicines, and shelves to be restocked, even if banks are still closed. Probably via special federal arrangements with the largest chains in the food and pharmacies sectors, and then rolling out to the next critical sectors on the list.
In these scenarios, it would be awhile before wads of cash would provide advantages. Imagine how little cash might be worth if u needed heart medication and food. Would $100 get u a bag of flour and beans from a frightened greedy neighbor if the local grocery is cleaned out in a morning panic? Thoughts?
I’m on my way to fill up the gas tank, buy some basic food staples, and get some allergy meds (I typically keep only ¼ tank of gas and 2 days of food in my house. Gotta break those bad habits.)
Jeff,
Thanks for another great update.
Do you have any recommendations on keeping cash safely out of the USD right now? Right now I own various CurrencyShares, MERKX, PSAFX, etc., which seem like the most conservative of the foreign currency fixed income securities available to the non-rich.
My current take is that the issuer risk on these is nonzero, and holding physical gold is a reasonably good hedge against their collapse.
anon
Great choices. I am in BEARX with Prudent. Did you hear Tice sold out to Fidelity today?
I love your currency play as well. The Swiss Franc has been the best currency play. Its held up very well
I absolutely love gold right now. I plan on buying some this week. I like (GLD) here if you don't wan to hold physical gold.
Gold versus oil is historically 9-1.Right now its trading at a 6-1 ratio.
As the world blows up I don't see how this trade doesn't work at least for the short term.
The only risk here is total asset deflation kicks in earlier than I expected. When deflation hits you need to get out of commodities because no one will have the cash to buy them.
We are a ways from deflation hitting on a full scale IMO, so gold works for now.
When deflation does hit its going to hit gold hard. As long as Ben doesn't protect the currency its a good trade.
Short term the economy is to rate for Ben to do this.
avl
You are scaring the crap out of me because your scenario makes total sense!
I can think of many businesses that don't take cash. Hotels for one come to mind.
Maybe I need to buy several bottles of vodka and wine so I can drink my way through this!
Minton
You are right on with CC debt. Congress stopped the pigmen from getting too crazy on interest rates.
I just want to stress the point that debt in a crashing economy is very bad.
Cash will be king and I think having some on hand is a must as this economic storm approaches.
I didn't hear about Tice selling out. What are the implications?
I'm loading up on gold right now. A lot of people waiting for some kind of breakout, but personally I think it's already happened!
FWIW, I'm holding my gold with these people to completely avoid securities exposure. GLD will only work until some scumbags make off with the booty.
Longer list of conservative non-USD warez I like.... MERKX, MEAFX, PSAFX, BWX, CYB, FXY, FXF.
Of the mutual funds, PSAFX is extra-special because it actually states in the prospectus that they won't lend out their securities. Very unusual.
anon
I don't know what the implications are. It was reported on CNBC so its legit.
I think its a smart move on his part. Selling a bear fund when being a bear is popular is smart on Tice's part.
I am not sure if he is still on board. I am a little worried until I get the details. I liked how this fund was run.
I like (GLD) just because I will be in and out of this trade. The deflation risk makes it too risky long term IMO.
I always remember the old Wall St. saying "trading gold always ends in tears".
Good luck and thanks for sharing your currency traddes. They are great ideas!
GL
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