Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Rush For Treasury Bonds Safety As Risks Rise At Cash Money Market Funds

Interest-Rates / US Bonds Nov 17, 2007 - 01:41 AM GMT

By: Anthony_Cherniawski

Interest-Rates Best Financial Markets Analysis ArticleCertain “yield enhanced short term bond funds” which have been offered as higher yield substitutes for money market funds have been feeling the pinch from the credit markets. The latest victim is a company that you'd not normally think of as a finance company, General Electric Company. “The diversified manufacturing company's money management arm, GEAM, which oversees the $5 billion GEAM Trust Enhanced Cash Fund, is still invested in the fund, but GE warned last week that it would sell holdings amid tough market conditions.


It allowed the handful of institutional investors who put money alongside GE's assets to get out first, letting them redeem at 96 cents on the dollar.”

Wachovia, Legg Mason and Bank of America are putting up hundreds of thousands of dollars to shore up their money market funds. There has not been a single money market fund that “broke the buck'” since 1994. Apparently, these institutions don't want to be the first. This is putting even more stress on the financial system.

Is your money market fund safe?

As banks, mutual fund companies and other financial institutions work to shore up their money market funds, investors are asking themselves, “ Are they safe? ” The answer isn't so clear when it comes to money market funds. They are not covered by the Federal Deposit Insurance Corporation, sometimes even if offered by a bank. Instead, there is an implicit understanding that the net asset value will always be $1.00 per share.

What can you do about your own money market funds? The first thing is to ask the company if there is any exposure to subprime mortgages. Second, check the yield. If your fund is paying more than the average money market fund, it may be using “yield enhancements” that come from mortgage derivatives. Third, does the company that sponsors your money market fund have substantial assets? If so, they will be more motivated to preserve the asset value of their money market funds. Finally, why not invest in a money market fund that is based on U.S. Treasury securities? If your company doesn't offer one, find one that does.

Producers and Consumers…

…don't usually have a lot in common, but this week there is a common theme running in both the Producer Price Index and the Consumer Price Index. The theme is, the headline that makes the front page of your newspaper isn't telling you what you really need to know. For example, the headline for the Producer Price Index told us that the cost of finished goods rose .1% in the month of October. But the year-over-year cost of finished goods (Table A) increased from 4.4% in September to 6.1% in October. How they got the math for the headline to work is beyond me. Table B is even worse, since the cost of crude goods jumped from 11.4% in September to 25.7% in October. Our business owners must be magicians, to get a 25.7% increase in raw goods to come out the other side at only 6.1% increase in finished goods.

Japan market is getting nastier…

…with nearly a 15% decline in the past month. Last night's market didn't offer a reprieve, as the Nikkei sold off due to worries about Japanese banks exposure to the subprime markets. You have to understand that it all started here. In order to keep the Japanese economy afloat, it's Central Bank offered loans to all comers at virtually 0%. This gave the U.S. mortgage market a boost through teaser rates, interest only and variable rate mortgages to anyone that could fog a mirror. Now the chickens are coming home to roost.

 

 

 

China fears impact of U.S. slowdown.

China's commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China's rapid economic growth.

Exports contribute more than a third of China 's economic growth and 10% of its gross domestic product. China is not prepared for an economic hard landing when our economy slows down. We may see evidence of this as early as the Christmas shopping season, which is fast coming upon us.

 

 

Consumers and markets on the precipice .

The US consumer is on the precipice of experiencing the first recessionary phase since 1991 – the last time we had the combination of punishingly high energy prices, weakening employment, real estate deflation and tightening credit conditions. And the consumer has accounted for as much as 70% of the total growth in the U.S. economy. Meanwhile, the Dow Jones Industrials are just above their August lows.

 

 

 

Bonds buoyed by bad news. 

We are seeing a lot of rotation by investors out of stocks and into bonds. But they aren't the only investors concerned enough to buy our treasury bonds. Foreign central banks have bought $634 million of our U.S. treasuries in the past week. Is it because our treasuries are one of the few sources of stability in view of subprime problems and declining markets? Let's hope so!

 

 

 

Foreclosures hit a snag.

The pooling of home loans into securities has been practiced for decades and helped propel real estate prices in recent years as investors sought the higher yields that such mortgage trusts could provide. Some $6.5 trillion of securitized mortgage debt was outstanding at the end of 2006. But as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes, consumer advocates say.

 

 

A comeback for the dollar.

A small reversal in the Dollar is in the making. This is the first time the dollar has had a chance to come up for air since early October. Is this the real thing? The answer may be found by observing the price of gold, which is known to trade inversely against the dollar. One contrarian sign that a trend change may be in the offing is the press , which has finally jumped onto the “bash the dollar” wagon with both feet. Supermodels are also known not to have the best timing.

 

 

 

A sudden shift for Gold investors.

The selling in the gold market began without any noteworthy gains in the dollar or a major sell-off in oil. It was about the weight and fatigue in the market. In other words, the cycle of higher prices was over. Not surprisingly, the other commodities listed below also had the same reaction. The higher prices in gold have recently been a catalyst for mining companies to take more risks. This may also be a sign that the rally is near completion.

 

 

 

Prices at the pump drop.

Oil inventories had been dropping since early October, putting pressure on finished petroleum products, such as gasoline and heating oil. This week saw an unexpected rise in oil inventories while OPEC cut its forecast for global oil demand. Imports of crude oil are also up 831,000 barrels from the previous week, alleviating the supply strain.

 

 

 

Natural gas prices may lead the way down for other sources of energy.

 

The colder weather this week was not unexpected by natural gas producers and shippers. The high inventory levels was enough cushion to allow lower prices, says the EIA Natural Gas Weekly Update . Meanwhile, China raised the price of ex-factory natural gas by 50% in order to curb consumption and bring the cost of domestically produced natural gas more in line with the cost of imported natural gas.

 

 

 

The War on Error.

J.R. Nyquist makes a great observation on the men that lead our country, especially regarding the war in Iraq . Everyone has heard the phrase, “Good Enough for Government Work.” It implies that government work is second rate. In defense of the government workers, there is incompetence, but the vast majority of people working for our governments at all levels are hardworking employees doing very difficult jobs. Unfortunately, the jobs being undertaken and the bureaucracies needed to do them are so massive that the individual is lost in the shuffle. And it is too easy to take potshots at “incompetence” when individual initiative is frowned upon.

Bob Woodward quotes former Defense Secretary Donald Rumsfeld as saying, “The charge of incompetence against the U.S. government should be easy to rebut if the American people understand the extent to which the current system of government makes competence next to impossible.” 

We're on the air every Friday.

Tim Wood of www.cyclesman.com , John Grant and I have had a running commentary on the markets again this week. You may listen to our comments by clicking here .

Please make an appointment to discuss our investment strategies by calling Claire or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .

Regards,

Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: It is not possible to invest directly into any index. The use of web-linked articles is meant to be informational in nature. It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.

Anthony M. Cherniawski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in