Where do PPers park their short term/emergency funds?

[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."

[MediumTex]

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. 

Numismatic coins were exempt from gold confiscation in the 1930s.

I think you could argue that the chaps you are describing would fit under a similar exception in a confiscation scenario.

The exception would be for "no-ass-matic" chaps.

[Lone Wolf]

Too funny!  I feel so much more comfortable having a hedge against both chaps confiscation as well as the "cessation of landscape maintenance".  How many portfolios can claim that? 

(By the way, I was pleased to learn that all of the "Mad Max" movies stream on Netflix.)

And in case my question was lost amidst our post-apocalyptic investment "strategery", I remain very confused by why Treasury Money Market Funds are such a difficult thing to provide at reasonable costs.  I have to be missing something.

[MediumTex]

And in case my question was lost amidst our post-apocalyptic investment "strategery", I remain very confused by why Treasury Money Market Funds are such a difficult thing to provide at reasonable costs.  I have to be missing something.

I don't have an answer to that one.

It's weird.  One would think it would be a very cheap type of fund to administer.

I have always noticed that the treasury fund that is part of the PRPFX family has always had a ridiculous expense ratio.

[Lone Wolf]

I have always noticed that the treasury fund that is part of the PRPFX family has always had a ridiculous expense ratio.

You're right!  I had never noticed that.  PRTBX's expense ratio is an unbelievable (to me) 0.71%!  Just to... have someone stare at your Treasury Bills for you.  Pass.

[KevinW]

It's weird.  One would think it would be a very cheap type of fund to administer.

Yeah.  I don't understand "where they get off" charging so much for such a simple instrument.

Maybe it's a supply-and-demand thing?  There aren't enough investors shopping on ER to trigger a price war? 

The only treasury MMF I know of with an ER I consider acceptable is Vanguard's, currently at .14%, but temporarily closed to new investors.

Such a fund should never have to worry about "breaking the buck", assuming that it is properly managed.

This is why I want to eventually switch to a treasury MMF for the long haul.  It isn't an urgent priority though.

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?

Convenience.  You can buy/sell MMF in increments of one cent vs. the larger denominations of T-bills.  Then you don't have "scraps" of cash to deal with.  A MMF has no capital gains or losses to complicate taxes.  The fund automatically reinvests matured bills without your intervention.  You can write checks against a MMF balance directly without the step of an ACH transfer into a checking account.  You don't need to concern yourself with dilemmas like buying at auction vs. the secondary market, 1 year T-bills vs. T-notes 1 year from maturity, etc.

Pretty minor stuff.  IMO it's a good value proposition at < .25% ER, but not worth it at the more typical > .50% ER.

[upside]

The exception would be for "no-ass-matic" chaps.

LMAO!

[l82start]

The only treasury MMF I know of with an ER I consider acceptable is Vanguard's, currently at .14%, but temporarily closed to new investors.

the last time i was on the phone with vanguard i asked if they knew if or when the MMF would be re-opened, they said they had no information about it and wouldn't try to guess..  i didn't think of it till i after hung up but next time i speak to them i will ask if i can be put on a list to be notified when it happens (or if getting a notification is possible)

-RE the OP..... most of my cash portion is in an online savings account and serves double purpose as my emergency funds, around 5%$ is in an IRA as SHY,
 

[LifestyleFreedom]

I imagine credit cards would be a more popular choice, with merchants taking down the information and processing the charges after things stabilized.

It's hard to say how these things would go down, though.

ATM machines would be the first casualty I imagine as people attempted to draw out as much cash as possible.  As I recall, this was the pattern in Argentina when things got ugly there.

Essentially all of my financial transactions are done online.  I get my paychecks deposited electronically, and almost all of my bills are presented to me electronically (which I then pay electronically once I get the emails from the bank saying they have arrived).  This includes my monthly energy and telecommunications bills, along with insurance and other bills that I get only once or twice a year.  I pay my estimated income taxes electronically.

I write less than five checks a year, and I almost never use cash.  What little cash I need I get at the supermarket when I use my store-issued debit card to access my checking account.  All of my investments are online also.  My financial life has been reduced to numbers on a computer screen.

If the United States has a collapse, I would hope the communications networks remain operational.  I figure (but don't know for sure) that stores would rely on payments with credit and debit cards, along with the instant verification that comes from using them.  Cash can be stolen or counterfeited, but credit and debit card transactions are harder to steal (assuming the person presenting the card is the rightful owner of that card, although some banks will even cover stolen card transactions).  If bank accounts are ever frozen, however, I'm hosed.

I may also be one EMP attack or major solar flare away from being wiped out because electronic gadgets are likely to get fried under such scenarios.  But it's where I stand right now.

[Gumby]

If the United States has a collapse, I would hope the communications networks remain operational.  I figure (but don't know for sure) that stores would rely on payments with credit and debit cards, along with the instant verification that comes from using them.  Cash can be stolen or counterfeited, but credit and debit card transactions are harder to steal (assuming the person presenting the card is the rightful owner of that card, although some banks will even cover stolen card transactions).  If bank accounts are ever frozen, however, I'm hosed.

I may also be one EMP attack or major solar flare away from being wiped out because electronic gadgets are likely to get fried under such scenarios.  But it's where I stand right now.

Even an earthquake may make you yearn for cash. Japan recently saw a huge shutdown of ATMs during the aftermath:

http://www.cnbc.com/id/42125021/ATM_Gli ... ssed_Tokyo
http://www.cnbc.com/id/42120964/Mizuho_ ... e_Shutdown

ATMs that were nowhere near the quake were also affected. It really never hurts to keep some cash on hand. It just proves that you never know what's going to happen. Sometimes cold hard cash can be very handy.

[TBV]

If the United States has a collapse, I would hope the communications networks remain operational.  I figure (but don't know for sure) that stores would rely on payments with credit and debit cards, along with the instant verification that comes from using them.  Cash can be stolen or counterfeited, but credit and debit card transactions are harder to steal (assuming the person presenting the card is the rightful owner of that card, although some banks will even cover stolen card transactions).  If bank accounts are ever frozen, however, I'm hosed.

I may also be one EMP attack or major solar flare away from being wiped out because electronic gadgets are likely to get fried under such scenarios.  But it's where I stand right now.

Even an earthquake may make you yearn for cash. Japan recently saw a huge shutdown of ATMs during the aftermath:

http://www.cnbc.com/id/42125021/ATM_Gli ... ssed_Tokyo
http://www.cnbc.com/id/42120964/Mizuho_ ... e_Shutdown

ATMs that were nowhere near the quake were also affected. It really never hurts to keep some cash on hand. It just proves that you never know what's going to happen. Sometimes cold hard cash can be very handy.

Good point about earthquakes, a lesson I learned firsthand.  However, you must remember that cash registers are also electronic.  Transactions, price detection, making change, keeping inventory, etc. are all dependent on the power being on.  So, no electricity = no purchases, even if you have cash in your pocket.  At least, that's been my experience.

[AdamA]

I figure (but don't know for sure) that stores would rely on payments with credit and debit cards, along with the instant verification that comes from using them. 

In the event of a banking crisis, the people who hold your cash and issue you credit may not allow you access to it.  Anything that you can't hold in your hand is just a promise.  Some promises are better than others, but many are broken in times of crisis. 

I'm not saying to hoard all your cash and gold under your mattress, but I would be very careful about what type of IOU's I'd be willing to accept. 

[moda0306]

Adam, I agree to some extent.  I can't see credit card companies continuing to allow you to build a balance and auto bill pay working when you can't even go to the bank and get physical cash. That just seems completely contradictory to me.  If you can't get cash, credit is tighter than a snare drum, and methinks these devices would be worth the plastic or digital ones and zeros that they consisted of.