Although gold and cash are both considered "safe havens," it is not clear where the safest place for cash currently is. Which of the following, for example, would you expect to be the safest place to store cash over the next few years? Which is the least safe?
- Vanguard Treasury Money Market
- Euro CD (offered through Everbank)
- Euro currency ETF (symbol FXE--the distributor is Rydex and depository is JPMorgan Chase)
I'm honestly not sure what the best answer is. T-bills are protected from bank failure but subject to a falling dollar, a risk which seems to me even more certain. The other 2 options are protected from a falling dollar but subject to bank failure. The Everbank CD is FDIC-insured, however, whereas the ETF is not.
Any thoughts?
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T-bills vs. foreign currency
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T-bills vs. foreign currency
by Bewildebeest » Sun 01 Oct 2006, 23:58:02
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Re: T-bills vs. foreign currency
by Tyler_JC » Mon 02 Oct 2006, 00:49:20
What's the yield on each of the investments?
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Re: T-bills vs. foreign currency
by GoIllini » Mon 02 Oct 2006, 01:29:27
$this->bbcode_second_pass_quote('Bewildebeest', 'A')lthough gold and cash are both considered "safe havens," it is not clear where the safest place for cash currently is. Which of the following, for example, would you expect to be the safest place to store cash over the next few years? Which is the least safe?
- Vanguard Treasury Money Market
- Euro CD (offered through Everbank)
- Euro currency ETF (symbol FXE--the distributor is Rydex and depository is JPMorgan Chase)
I'm honestly not sure what the best answer is. T-bills are protected from bank failure but subject to a falling dollar, a risk which seems to me even more certain. The other 2 options are protected from a falling dollar but subject to bank failure. The Everbank CD is FDIC-insured, however, whereas the ETF is not.
Any thoughts?
- Vanguard Treasury Money Market
- Euro CD (offered through Everbank)
- Euro currency ETF (symbol FXE--the distributor is Rydex and depository is JPMorgan Chase)
I'm honestly not sure what the best answer is. T-bills are protected from bank failure but subject to a falling dollar, a risk which seems to me even more certain. The other 2 options are protected from a falling dollar but subject to bank failure. The Everbank CD is FDIC-insured, however, whereas the ETF is not.
Any thoughts?
Bewilder,
Have you considered TIPS, or some sorta mutual fund based on them? TIPS are inflation-indexed federal bonds that pay two forms of interest:
1.) An inflation interest that is reinvested in the bond semi-annually. Inflation interest is based on the Urban Consumer Price Index.
2.) A non-inflation interest (coupon) that is paid to the bondholder (semi-annually, I think).
These may also be worth a look, since TIPs are paying 2.4% over inflation, right now.
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Re: T-bills vs. foreign currency
by Doly » Mon 02 Oct 2006, 05:33:51
$this->bbcode_second_pass_quote('GoIllini', '
')Have you considered TIPS, or some sorta mutual fund based on them? TIPS are inflation-indexed federal bonds that pay two forms of interest.
')Have you considered TIPS, or some sorta mutual fund based on them? TIPS are inflation-indexed federal bonds that pay two forms of interest.
For the paranoids, is there any way an investment like this could go wrong?
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Re: T-bills vs. foreign currency
by Micki » Mon 02 Oct 2006, 06:26:44
$this->bbcode_second_pass_quote('', 'i')s there any way an investment like this could go wrong?
Well, given that the official inflation figures are lower than the real figures, I guess this would be magnified even more so the bigger inflation grows.
So allthough your pool of money grows, it doesn't keep pace with cost increases.
How often is the rate adjusted?
In a hyper inflationary environemnt, i.e. Zimbawe, Argentina or Germany in the late twenties, inflation increased exponentially.
Germany is of course th eworst case, where salaries had to be paid out daily and money used up within hours or it lost its value.
I have been for a few years and still remain a firm believer in Silver and Gold for as long as we don't have a defletionary depression. If we are still on a fiat system when this happens, I think cash will be good and use that to buy good properties like farms and essential industries etc.
- Micki
Re: T-bills vs. foreign currency
by gego » Mon 02 Oct 2006, 07:00:52
Before I can have "any thoughts" what currency to you spend? (In what country do you live?)
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Re: T-bills vs. foreign currency
by strider3700 » Mon 02 Oct 2006, 12:13:36
Remember that cheney is turning his US dollars into Euro's. THat tells me not to touch US dollars or US treasury's.
The pres and him also both have large self sustaining off grid ranches complete with solar power.
The way the TPTB are acting says most people aren't doomer enough.
The pres and him also both have large self sustaining off grid ranches complete with solar power.
The way the TPTB are acting says most people aren't doomer enough.
shame on us, doomed from the start
god have mercy on our dirty little hearts
god have mercy on our dirty little hearts
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Re: T-bills vs. foreign currency
by Bewildebeest » Mon 02 Oct 2006, 13:11:09
Thanks for all the replies.
I live in the U.S. If I choose a dollar-denominated investment, I guess a TIPS fund is equally protected from bank failure as a Treasury money market, plus it tracks a measure of inflation, and should be equally liquid. So maybe a Treasury money market does not have any real advantages?
Current yields are:
Vanguard Treasury MM -- 4.79%
Everbank 3 month Euro CD -- 1.75%
Euro currency ETF -- approx. 1.75% (can't find this offhand)
I live in the U.S. If I choose a dollar-denominated investment, I guess a TIPS fund is equally protected from bank failure as a Treasury money market, plus it tracks a measure of inflation, and should be equally liquid. So maybe a Treasury money market does not have any real advantages?
Current yields are:
Vanguard Treasury MM -- 4.79%
Everbank 3 month Euro CD -- 1.75%
Euro currency ETF -- approx. 1.75% (can't find this offhand)
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Re: T-bills vs. foreign currency
by GoIllini » Tue 03 Oct 2006, 01:42:08
Double-post.
Last edited by GoIllini on Tue 03 Oct 2006, 01:44:29, edited 1 time in total.
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Re: T-bills vs. foreign currency
by GoIllini » Tue 03 Oct 2006, 01:43:53
$this->bbcode_second_pass_quote('Bewildebeest', 'T')hanks for all the replies.
I live in the U.S. If I choose a dollar-denominated investment, I guess a TIPS fund is equally protected from bank failure as a Treasury money market, plus it tracks a measure of inflation, and should be equally liquid. So maybe a Treasury money market does not have any real advantages?
Current yields are:
Vanguard Treasury MM -- 4.79%
Everbank 3 month Euro CD -- 1.75%
Euro currency ETF -- approx. 1.75% (can't find this offhand)
I live in the U.S. If I choose a dollar-denominated investment, I guess a TIPS fund is equally protected from bank failure as a Treasury money market, plus it tracks a measure of inflation, and should be equally liquid. So maybe a Treasury money market does not have any real advantages?
Current yields are:
Vanguard Treasury MM -- 4.79%
Everbank 3 month Euro CD -- 1.75%
Euro currency ETF -- approx. 1.75% (can't find this offhand)
Treasury Money Markets are nicer because:
A.) They're a little more liquid. Most of these investments are T-Bills and T-Notes that are about to expire. Trillions are traded every day. The same can't quite be said about TIPS. Most of the owners are buy-and-hold retail types, not traders. That means that you won't see quite as big of a secondary market. Still, it looks like Vanguard can trade them.
B.) If the money supply decreases dramatically, the first thing that will happen will be that pre-inflation interest rates will go up. TIPS may go from paying Inflation+2.4% to Inflation+5%, and that *could* decrease the value of your investment, short-term. If you intend to buy-and-hold, you won't be hurt.
C.) Money-Markets also roughly track inflation, in theory. Having said that, it's not guaranteed. It's sorta like how oil companies' stock prices *kinda* track the value of oil, but not necessarily. If you want a semi-guarantee, TIPS are the way to go.
$this->bbcode_second_pass_quote('', 'W')ell, given that the official inflation figures are lower than the real figures, I guess this would be magnified even more so the bigger inflation grows.
So allthough your pool of money grows, it doesn't keep pace with cost increases.
You raise an interesting point. The CPI is based on a market-basket that may not be representative of the needs of Americans. Having said that, in theory, if you put $100K into TIPS today, and that $100K would buy you 30% of a car, 5,000 loaves of bread, 6% of a typical urban condo, and such, the CPI inflation-adjusted principal would still buy you exactly that. So if hyperinflation does hit, you'll still have (eventually) the money to buy the necessities you need.
$this->bbcode_second_pass_quote('', 'H')ow often is the rate adjusted?
In a hyper inflationary environemnt, i.e. Zimbawe, Argentina or Germany in the late twenties, inflation increased exponentially.
Germany is of course th eworst case, where salaries had to be paid out daily and money used up within hours or it lost its value.
In terms of asset protection, TIPS are great. After six months, inflation is computed based on the Dept. of Commerce's CPI-Urban calculations. This means that if hyperinflation hits, your principal is safe. Also, I'm pretty sure that interest is paid on the inflation-adjusted principal at the same time.
These guys aren't foolproof, but they're great investments for widows and orphans. If you have $2 million in the bank, and want the equivalent of roughly $48K/year for the next thirty years, TIPS may be the way to go.
One of the drawbacks of TIPS is that there's more default risk with the federal government. If the Federal Government, for example, chose to issue all of its debt in TIPS, it wouldn't be able to simply turn on the printing presses if it needed to pay down debt. Thankfully, most of the government's debt is in fixed rate securities.
$this->bbcode_second_pass_quote('', 'F')or the paranoids, is there any way an investment like this could go wrong?
1.) Washington goes up in smoke in a nuclear attack by terrorists. It would take more than just that, but that would be enough to spook me if I owned TIPS.
2.) The Fed defaults on its debt. This has never happened and seems unlikely- since they own the printing presses, but if the feds did default, you'd receive anything from a penny to ninety-nine cents on the inflation-adjusted dollars they owe you.
3.) Massive (and I mean massive- say, 10%/day; it would easily need to make Weimar Germany look like a joke and likely need to exceed some of the more pessimistic assumptions on these forums) hyperinflation would cause cash-flow issues unless you immediately bought gold with your dividends, but your principal would be protected, assuming the hyperinflationary fears weren't related to either 1 or 2.
4.) For the less paranoids, investing in TIPS may mean giving up opportunities to take advantage of increases in various rates. Still, on a historical level, 2.4%+inflation interest isn't particularly bad.
To sum things up, if TIPS go bad on you and you live in the U.S, you're probably screwed anyways.
(Please note that this post does not constitute professional investment advice. Please talk to a financial advisor before investing in TIPS about how you can meet your risk profile. Just be careful not to scare them by asking how TIPS would work in a terrorist attack, a global war, or a situation involving the collapse of the federal government.)
