Where do PPers park their short term/emergency funds?

[Jan Van]

All that said, are maybe some st treasury bonds (ie, paper i-bonds) that are in paper form (can they even be transferred?) a nice diversification within cash that could give you something physical to trade without having to actually store cash at 0% in your safe?

I-bonds are non-transferrable and most people wouldn't even know what they were.  I-bonds will not be used for cash in an emergency.

Yes, Moda0306, that does sound like a good way to keep some "near-cash" and still get interest... I actually got my tax return last year in I-Bonds, out of curiosity 

[moda0306]

I just have to think there would be a nice way to get a transferrable 1 year bond or something in paper form to make some of your "mattress cash" interest bearing... this is probably much more worthwhile in high interest rate environments.

[MediumTex]

I just have to think there would be a nice way to get a transferrable 1 year bond or something in paper form to make some of your "mattress cash" interest bearing... this is probably much more worthwhile in high interest rate environments.

Your thinking along the lines of those old school "bearer bonds" that they used in the first Die Hard movie.

[fnord123]

Your thinking along the lines of those old school "bearer bonds" that they used in the first Die Hard movie.

That was the best Die Hard imo.  I think they were used in the movie Heat too.

They are very rare nowadays, it is doubtful people would be able to find many, and even if they did, most people would not know what to do with them. Reference: http://www.investopedia.com/articles/bo ... r-bond.asp

In a bank closure scenario, cash is king, with gold likely being a poor second place.  Read the sections on the gray/black market and gold for a firsthand account on how things went for emergency funds in Argentina: http://www.rapidtrends.com/surving-arge ... -part-1-3/

[AdamA]

The huge strength of a dollar during a crisis of that sort would imply that treasury-backed substitutes in paper form would emerge, would it not? Maybe gold would do well during this time, or at least hold its value.

I think this actually may be what's happening right now.  In a bad deflationary environment, the dollars that survive are very valuable, it's just that not a lot of them survive.  People figure that treasurys are the safest place, but in the event of a really bad event wherein there's trouble cashing in on those, gold is a great thing to have.

I think this is the argument for why gold does well in deflation as well as inflation (the inflationary argument is just easier to understand until you really think about what can happen to cash IOU's in a deflation).  

[AdamA]

It will work for those funds (in theory) as long as they are treasury only money market funds.  Vanguard and Fidelity both have these, but I think they are either currently closed or have a very high minimum ($100K).  American Century has one with a more reasonable minimum ($3K).  You can write checks from it (minimum $100).

The part that might not work is turning your brokerage treasury holdings/treasury MM into cash in hand.  Either you have to write a check (but if banks are closed/FDIC is failing, who is going to accept your brokerage checks?) or you can ACH your funds from Vanguard/Fidelity/etc to your bank account (but your bank is closed).

It might not, but I think this guy's theory seems to be that if you have a check from the Treasury which is in fact what you get (or can request) in a treasury only money market fund (again according to the author), which you could then cash at one of these alleged designated banks.  

A lot of if's, but, again, it's just one guy's thought.

[moda0306]

I could see a check from the treasury functioning as money.  Since MT crushed my dreams of trading i-bonds with cash-strapped civilians during a banking panic, I suppose this will have to do.

Die Hard is the best action movie, ever.  I would watch it tonight if it were on tv.

"Now I have a machine gun.... ho..... ho.... ho."  Alan Rickman... classic.

[fnord123]

It might not, but I think this guy's theory seems to be that if you have a check from the Treasury which is in fact what you get (or can request) in a treasury only money market fund (again according to the author), which you could then cash at one of these alleged designated banks.  

A practical drawback on treasury money market funds just came to mind: They have terrible terms and/or you cannot get them.

• Vanguard closed theirs in 2009 - you cannot use a Vanguard treasury money market unless you already have one open
• Fidelity's requires a $25K minimum, currently pays 0.1% to 0.0% interest, and has a 0.49% expense ratio.  So to use them, you will be losing (!!) half a percent a year just to hold onto your money.

Does anybody know of an open treasury money market with reasonable terms?

[AdamA]

Does anybody know of an open treasury money market with reasonable terms?

American Century has one with a minimum of $3K.  Return is .01% with an expense ratio of .48.  

The lousy yield should be a clue to you that dollars are in demand.  I think the safety here is worth taking the small loss.  Reaching for yield can get you into trouble.  

[moda0306]

Why not just hold onto the greenbacks if you're going to get negative return... am I missing something here?

[MediumTex]

I could see a check from the treasury functioning as money.  Since MT crushed my dreams of trading i-bonds with cash-strapped civilians during a banking panic, I suppose this will have to do.

Using our stockpiled VP leather chaps is always an option.

In a SHTF scenario, I am certain their value would skyrocket.

[moda0306]

I could see a check from the treasury functioning as money.  Since MT crushed my dreams of trading i-bonds with cash-strapped civilians during a banking panic, I suppose this will have to do.

Using our stockpiled VP leather chaps is always an option.

In a SHTF scenario, I am certain their value would skyrocket.

Yippee Kayay, MF.

[fnord123]

The lousy yield should be a clue to you that dollars are in demand.  I think the safety here is worth taking the small loss.

I'm afraid the lousy yield is only a clue about the Fed's current discount rate. In the following image (assuming I get it to work), the first is the Fed discount rate from 1994 to 2011. The second is the 3mo UST rate:

As you can see, they are basically identical.  The Fed sets the rate, the UST follows it.

Reaching for yield can get you into trouble.

I have always thought of this phrase as being incomplete at best.  We always reach for yield - if there was a treasury MM that had a 2% expense ratio and one that had a 0.5% expense ratio, all else being equal, any rational person would pick the 0.5% one.

Reaching for uninformed, risk-unadjusted yield will indeed get you into trouble.

Reaching for informed, risk-adjusted yield will keep you out of trouble.  Pick your risk level, then find the instrument that offers the greatest yield at that level.

[moda0306]

I think when people refer to the danger "reaching for yeild" they're not referring to someone shopping expense ratios for otherwise equal funds.  They're talking about the slippery slope that can come from accepting "just a bit" more risk for higher yeild: Treasuries, FDIC savings, Munis, Corporates, Junk.  Pretty soon you're getting extremely tax-inefficient return from something that is the worst of both worlds between stocks and treasuries.

[fnord123]

That's the "reaching for uninformed, risk-unadjusted yield" version of "reaching for yield" - which indeed is a bad idea.

Based on the information I have, I believe that FDIC insured assets for a significant portion of PP cash is reaching for "informed, risk-adjusted yield", which is a good thing.  Of course others may judge the risk differently, but differences in opinion about risk are not automatically adjudicated by stating "don't reach for yield"

[moda0306]

I wonder what would be a fair "negative return" to attach to the risk of having money stolen that you keep in a safe at home.  I'm sorry, but at anything less than .5% interest, I am going to probably vote with my $ and just keep a much greater portion (not all) of my cash in my safe.

Do typical homeowner's policies cover up to a certain amount of cash in your home?

[AdamA]

As you can see, they are basically identical.  The Fed sets the rate, the UST follows it.

That's true, but, they can set it that low because people are willing to accept that return.  So, to me, it doesn't really matter who sets the rate, the fact that people are willing to accept it says something.  I think it's basically a supply and demand issue, and this market (short term US paper) is very big, and very efficient.  

Reaching for uninformed, risk-unadjusted yield will indeed get you into trouble.

Reaching for informed, risk-adjusted yield will keep you out of trouble.  Pick your risk level, then find the instrument that offers the greatest yield at that level.

That's true too, but I think that ignoring this low interest rate in light of what happened in 2008-2009 is dangerous (a little), and may count as uninformed, if you view the rate set by the Fed as arbitrary.  

It would bug the heck out me to miss a good rebalancing opportunity because there was a delay due to a liquidity problem at my bank or where ever I was keeping my cash.

BTW, a lot of this is me playing devil's advocate, as I'm still trying to figure a lot of this out myself, so I enjoy the debate, and am not in any way accusing you of being "uninformed." 

[Jan Van]

What's the feeling around here about ST and IT treasuries in light of the upcoming end of QE2? And money managers like Pimco pulling out of US treasuries alltogether?

[AdamA]

What's the feeling around here about ST and IT treasuries in light of the upcoming end of QE2? And money managers like Pimco pulling out of US treasuries alltogether?

My feeling is that this is largely background noise.  Long term treasuries are my favorite PP asset right now.  The reason:  they're the asset that "everyone knows" are overvalued presently. 

 

[moda0306]

QE both lowers the supply of low-risk assets (rate lowering tendency - helps LT bonds), and raises the chances of inflation (rate raising tendency - Hurts LT bonds).  This action is both a degrading of the dollar (gold) and is a hand out to corporations in the form of artificially low interest rates (stocks).

If there's anything that I oddly think is irrelevant to which asset I want to own, it's QE.

[MediumTex]

When QE1 ended, interest rates fell.

A lot of this stuff is just voodoo.  No one knows what is goong to happen next or what the effects of these policies will be.

Japan has been doing QE for years.

[Lone Wolf]

Can anyone educate me on why the fees for Treasury Money Market funds are so high (and why these are considered acceptable)?  I know that there has to be a fairly simple reason but it's eluding me.

It seems that such a money market just has to buy a lot of very short-term government debt.  As individuals buy shares of your MMF, you must purchase more T-bills.  As individuals get rid of shares of your MMF (for whatever reason, including simply to buy stocks), you will sometimes need to sell off chunks of T-bills.

This all seems really, really simple to me.  Such a fund should never have to worry about "breaking the buck", assuming that it is properly managed.

On the flipside, what makes a Treasury Money Market fund superior to simply holding individual T-bills or Treasury Notes in your brokerage account or TreasuryDirect?  There must be something attractive about it that would justify ~50 basis points of expenses.  What is it?

[Lone Wolf]

Using our stockpiled VP leather chaps is always an option.

In a SHTF scenario, I am certain their value would skyrocket.

I hope you're right but are we working under an unproven assumption?

Leather chaps perform well in nuked-out desert worlds of the future.

Leather chaps perform well in that great new discotheque that just opened in midtown.

But do they hold up in a full-scale bank panic?  We simply don't know.  Tragically, Roosevelt's chaps confiscation programs during the Great Depression have obscured any potential data from that time period.

[moda0306]

One way to avoid potential confiscation is to obtain chaps in "assless" form, thereby giving them the appearance as a consumer or recreation item, and not the obviously investment-grade full chaps. 

[MediumTex]

Using our stockpiled VP leather chaps is always an option.

In a SHTF scenario, I am certain their value would skyrocket.

I hope you're right but are we working under an unproven assumption?

Leather chaps perform well in nuked-out desert worlds of the future.

Leather chaps perform well in that great new discotheque that just opened in midtown.

But do they hold up in a full-scale bank panic?  We simply don't know.  Tragically, Roosevelt's chaps confiscation programs during the Great Depression have obscured any potential data from that time period.

When gauging potential chaps demand under various SHTF scenarios, what you really need to pay attention to is the probability of sharp things from ground level up to about one meter (two meters if you include equestrian applications) either increasing or decreasing in frequency.  Given that SHTF scenarios typically involve a lot of things being broken and landscaping not being as diligently maintained, I think we can assume that the demand factors for chaps would only increase in most conceivable disaster scenarios.  If we assume an increase in chaps demand against a more or less static "chaps stock" across the whole economy (at least temporarily), I think it is reasonable to assume that the price of chaps would rise, possibly dramatically if the speculators came into the market.

If we had a purely financial crisis that didn't involve any other societal breakdown or the cessation of landscape maintenance, I think the chaps play would involve more risk.  The possibility of alternative technologies emerging is also something to consider, as one can easily imagine Kevlar leggings crowding the chaps market, depending upon the preferences of post-SHTF leg protection enthusiasts.

When considering whether a chaps VP is a foolish speculation, it's not any dumber than a speculative bubble in tulips.  Since "mania" is already associated with the tulip bubble, I would propose that we refer to any speculative bubble in chaps as "Leg Leather Madness."