All America Bank 1.5%

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pugchief
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Re: All America Bank 1.5%

Post by pugchief » Mon Jul 24, 2017 11:10 am

dualstow wrote:
fine print says they don't have to honor your request, nor is there a set amount of time for them to do so.
Good to know! I was weakening, thinking about joining my friends who buy CDs. (they're non-pp people). I'll stick to bills and notes for the majority, and Prime mm & i-Bonds for the icing.
You guys crack me up. What makes you think Vanguard Prime is safer than a CD? The oldest money market fund in the US [The Reserve] broke the buck in 2008 and because my TradeKing account used them as their sweep account, the money was inaccessible for a couple of months. They did eventually return all of the principal [no more interest was paid during the lockup] thank goodness. It wasn't all that much cash as a percentage of my total cash, but it was still a pain in the backside.
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Re: All America Bank 1.5%

Post by dualstow » Mon Jul 24, 2017 11:26 am

pugchief wrote:You guys crack me up. What makes you think Vanguard Prime is safer than a CD?
I don't. I wouldn't put 80% of my pp cash in CDs, and I wouldn't put it in Prime. Now, is it more probable that the bank would cause trouble than Vanguard would if I tried to redeem a CD/ transfer out of Prime during a crisis? I have no idea. When it comes to safety, I think of them both as simply inferior to Treasuries and "pretty safe." Beyond that, I don't know and I don't care, because 20% or less is in them.

I do find the money market convenient. Easy to transfer funds. Don't need to keep repurchasing new instruments.
Two out of three Canadians live within about 60 miles of the American border. — NYT
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Re: All America Bank 1.5%

Post by jhogue » Mon Jul 24, 2017 12:02 pm

Dear Pugchief,

Eureka!

You said,

”As you noted however, this wasn't an investment account but small business checking, and last I checked, Treasury Direct does not offer a T-bill secured account for said purposes. So I really didn't have too many options.” (7/20/17)

and ,

“Also will again point out that a small business checking is not an 'investment account', but used for operating funds only. “ (7/23/17)


Great news!
Fidelity now offers a small business account with the option of a core Treasury money market fund (FZFXX). They also have half a dozen brick-and-mortar offices in the greater Chicago area for your convenience.

https://www.fidelity.com/customer-servi ... s-complete

Armed with this information, you need never again have to worry about being mistaken for a Holstein and milked by TBTF (but FDIC-insured) megabanks! I am so happy for you!!
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: All America Bank 1.5%

Post by pugchief » Mon Jul 24, 2017 1:25 pm

JHogue,
Thanks for the link. Unfortunately, that account is not suitable for the number of 'transactions' we incur monthly in our small business checking account. Even if it was, there is not a Fidelity office in close proximity to my home or office, and since we deposit many payment checks daily, I would need a bank that I could night drop deposits nearby. I do not trust the USPS to consistently deliver mail deposits in a timely fashion without losing them. This happened once about 15 years ago when we used a bank that was not local, and a deposit with 30 checks from insurance companies and patients was lost. The process of trying to get replacements was a nightmare. Local banks only going forward for the office checking account [If I don't drive right by it on my way home, forget it.].

Thanks for looking out for me! O0
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Re: All America Bank 1.5%

Post by dualstow » Mon Jul 24, 2017 1:29 pm

During this thread, my participation in a t-bill auction executed.
Hope I got an OK rate.
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Re: All America Bank 1.5%

Post by Desert » Mon Jul 24, 2017 4:51 pm

jhogue wrote: dear Desert,
Thanks for reading my post and responding.

1. Just to be clear, I did not say and do not think that FDIC-insured accounts are “high risk.” I stated that Treasury-backed I bonds have “less principal risk than FDIC-insured CDs or bank accounts.” In reciting the perils of Pugchief’s adventure with WaMu and the milking crew at FDIC-insured JP Morgan Chase, I thought I advanced an empirical case for preferring Treasury-issued over FDIC-insured debt, even under less than catastrophic conditions. But 2008 DID happen in our living memory, not in some far off past or imagined future. Perhaps that case was not particularly compelling. Or, perhaps you believe Janet Yellen’s pronouncements last week before Congress on the state of the banking system. Or, perhaps people are exhibiting crowd behavior, chasing yield, and covering it up with a collective case of cognitive dissonance. Or, I dunno… Which do you think it is?

2. I take very seriously the concern you expressed about inflation’s effect on Treasurys. We will all be crossing our fingers that stocks and gold in the PP will once again take up the slack when LTTs are getting crushed in the next turn of the cycle.

But for the cash or STT portion of fixed income accounts, I regard the creation of Treasury-backed I bonds as a significant financial innovation that deserves more attention from savers and investors, whether they hold a PP or not. Consider this: which has more inflation protection, a 5 year CD, or an I bond held for 5 years? During that 5 year period, an I bond is guaranteed to reset 10 times (tax deferred) according to changes in the CPI-U. I am not aware of any CD that does that. With CDs, I guess you would have to keep selling and buying when rates change, paying taxes on the income each time you decide to sell. Not only that, if you are really worried about long term inflation, you can buy and hold an I bond for 30 years, tax deferred. During that period of time, your I bond gets reset for inflation 60 times but is guaranteed to never drop below zero. Is the risk-adjusted return of a 30 year CD better than that?

(Last time I checked at Fidelity, you can’t even buy a 30 year CD. Ever wonder why?)
Thanks for the reply. My summary of the differences is as follows:
1. CD's have more liquidity risk than treasuries; I might not be able to get my money in an instant when I want it
2. Treasuries have more interest rate risk than CD's; I don't get to exit a treasury with a loss of 6 months interest. I have to take the full capital loss in an increasing-rates environment
3. CD's sometimes yield significantly more than treasuries, and when they do, are less susceptible to the erosion of inflation
4. Default risk advantage is unclear to me. Your holstein milking story describes liquidity risk, not default risk

But I want to be clear: Treasuries are great. They are simple, liquid and easy to manage. I don't have a problem with 100 percent treasuries in the FI allocation. But for me, CD's provide additional yield and reduced rate risk that is worth the inconvenience and liquidity risk. And that's about all I have to say on this topic.

Oh, and I bonds are great as well. The only downside to I bonds is the annual purchase limit, plus the yield in deflationary periods. But I'm a big fan of I bonds. Tax deferment is a great advantage as well.
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Re: All America Bank 1.5%

Post by thisisallen » Mon Jul 24, 2017 5:48 pm

Did I lose the plot here? This is a discussion in the Cash sub forum. Are people suggesting to use I bonds and CDs as cash in the PP?
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Re: All America Bank 1.5%

Post by Desert » Mon Jul 24, 2017 6:13 pm

TennPaGa wrote:
dualstow wrote:
Desert wrote:
Dude, that's insanity. I hate to do interventions, but I'm thinking about one now ... you are completely off the reservation. O0
And I don't care who knows it. Whoo hoo I feel so free!
https://youtu.be/mRVUe2Ha6dg
;D Gosh, that was perfect!
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Re: All America Bank 1.5%

Post by Jeffreyalan » Mon Jul 24, 2017 7:58 pm

While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I sure would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
Last edited by Jeffreyalan on Mon Jul 24, 2017 8:24 pm, edited 1 time in total.
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Re: All America Bank 1.5%

Post by pugchief » Mon Jul 24, 2017 8:11 pm

Jeffreyalan wrote:While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I should would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
As CraigR was fond of saying, "Don't buy fire insurance from the arsonist."
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Re: All America Bank 1.5%

Post by Desert » Mon Jul 24, 2017 8:13 pm

thisisallen wrote:Did I lose the plot here? This is a discussion in the Cash sub forum. Are people suggesting to use I bonds and CDs as cash in the PP?
Yes
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Re: All America Bank 1.5%

Post by jhogue » Tue Jul 25, 2017 5:40 pm

Jeffreyalan wrote:While we are on the topic of I Bonds, I have a general question. It seems most posters here are of the opinion that the Treasury will never outright default on their bonds, but will instead opt to pseudo-default by inflation. If one believes that then part of that scheme would have to be the under reporting of the inflation numbers. It seems to me that there would be no use to inflate the debt away if you reported the exact correct inflation numbers and therefore govt salaries, social security, TIPS, Ibonds etc all grew at the rate of inflation. I sure would feel like a sucker holding a bond with a zero fixed rate that was earning the "official" rate of inflation while "real" inflation was twice that amount. Thoughts?
Dear Jeffreyalan,
1. I am one of those who is of the opinion that the Treasury will not “outright default on their bonds.” Why? Because I am a historian. I can’t know it for certain—no one can—but I do have two centuries of consistent data that includes the dislocations of two world wars, the biggest depression in world history, bouts of high inflation, decades on and off the gold standard, a number of real estate bubbles, frequent stock market crashes, and a civil war that almost tore the nation in two and killed upwards of one million of its citizens. The U.S. Treasury is not perfect by any means, but Alexander Hamilton’s creation remains, to paraphrase Winston Churchill, the worst financial system in the world—except for all others.

2. I am also of the opinion that the Federal Reserve Open Market Committee (FOMC), which sets short term interest rates, has an inflationary bias. Why? Take Janet Yellen’s word for it, not mine. She regularly proclaims it from the mountain tops for all to hear. It is an article of faith for those of her academic stripe and her actions as Fed chair consistently match her words.

3. I do not believe that there is a “scheme” to underreport inflation. Why? See 2. above. The “inflationistas”—from Paul Krugman to Janet Yellen don’t hide their views because they believe inflation is good for the economy. Why should they mis-report inflation? Besides that, millions of Americans with Social Security, military, and federal pensions get annual inflation adjustments based on the Consumer Price Index (CPI). They also have powerful lobby groups in Washington who you can bet your bottom dollar would raise a ruckus from here to kingdom come if somebody tried to cook the books on the compilation of CPI.

4. On the subject of I bonds, I was a sceptic too until I began reading and thinking about Medium Tex’s posts about I bonds on this forum. MT pointed out that THE ONLY THING that I bonds have to do to make them attractive for PP Cash is to beat the yield of a 1 year Treasury. A 1 year Treasury is a simple gauge of no-risk, guaranteed minimum return for PP Cash (Tyler, for instance, uses 1 year Treasurys for STT numbers in his wonderful graphics). One year is also, coincidentally the minimum time you must hold an I bond before you can redeem it. At that point, you can either keep your I bond (if you like the new rate) or sell your I bond (if you think the new rate stinks).

So how have I bonds done in practice, you may ask? Consider a concrete example:

If I bought an I bond purchased in November 2016, from Nov. 16 to April 17 the 6 month yield was 2.76%. From May 2017 to October 2017 the re-set 6 month yield was 1.96%, for an annualized yield of 2.36%, redeemable on 1 November 2017. That was the variable yield only; the additional fixed yield set at the time of purchase was a disappointing 0%. (The I bond yield is composed of both a fixed rate and a variable rate that automatically reset each 6 months based on the CPI-U inflation figures).

In comparison, a 1 year Treasury, sold on 11/02/2016 with a maturity of 11/02/17, has a yield when held to maturity of 1.08%. The best 1 year CD available (from Fidelity brokerage) in November 2016 had a coupon of 1.50%. That means my I bond handily outperformed my PP standard STT by 1.28 % and the “best deal” FDIC-insured brokerage CD by 0.86%!

THIS IS FREE LUNCH FOR THE MIDDLE CLASS, PEOPLE! GET YOURS NOW!!

So, Jeffreyalan, the first error in your post was your assumption that if there is an inflationary bias among economic officials, then there must be some kind of “scheme” to under report inflation. The Department of Labor bureaucrats who compile CPI-U figures would have a good laugh at that one. There is a lot of argument among professional and academic economists over tweaks in the formula used to compute the real rate of inflation (just as there is in the unemployment figures), but it is pretty much all out there in the open.

The second error in your post was misunderstanding how the I bond rate is computed. The I bond yield is composed of BOTH a fixed component and a variable component. It’s nice to have a fixed component that is higher than 0%, but the variable rate alone can still make I bonds attractive compared with a 1 year Treasury bill or a 1 year CD. I bonds have other attractive features for savers and investors, but those are just the icing on the cake.

You do eat cake, don’t you?
Last edited by jhogue on Tue Jul 25, 2017 7:26 pm, edited 2 times in total.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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