Heyer Capital, LLC

Did the Fed pass out regulatory “Get out of the doghouse FREE” cards to banks today, or imply that workouts are up the banks and the Fed won’t help?

Is this related to investor whale Wilbur Ross warning today against the beginning of a “huge” crash in commercial real estate (CRE)?

It may be a sign of the times that I received a post-silver certifcate certificate $20 bill in change from Aldis over the weekend.  Our currency – now at new lows – used to be backed by gold and silver.  The currency itself was the contract; each bill said (originally) “There is one on deposit in the Treasury of the United States of America $20 Dollars in Silver Coin payable to the Bearer on Demand.”  Older readers may remember being able to take a paper bill into a bank and receive a silver coin in exchange. (Gresham’s Law in reverse, but that’s another post.)

Naturally, as the government printed more bills (made more promises) than there was coin in the vault, the contact is a fraud. So they changed the contract to “The United States of America will pay to the bearer on demand Twenty Dollars.”  Gee, thanks.  I have a paper promise in my hands and as security the government will give me more paper.  Who wins and who loses in that exchange?

  The bill I received is a fairly crisp specimen from 1950.  Could it be that prior to its brief time at the top of the till at Aldi’s, it was securely nestled all these years in the mattress of a poor pensioner who is just now working her way down, like an archeologist, to that tranche of her savings and reserve?

Enough gravy: here’s the meat.  If you have more than $100,000 in any bank no matter how local and trusted, in any account no matter how its titled, you must  review the rules on FDIC.gov.  Do not rely on the gentle assurances of the teller that your $200,000 CD is just fine.  Pay particular attention to the rule differentiation on pay on death (POD); joint accounts; revocable trusts; and irrevocable trusts.  

Of course, if you have $200k in a CD for general savings or anything other than a time-specific goal we need to chat.

UPDATE:  this good post from Mish Shedlock covers a fair amount of ground too.

Mish Shedlock deserves your daily attention (or at least let your RSS feed bring it to you.) Here is his blog web site: http://globaleconomicanalysis.blogspot.comThe most stunning news he’s delivered lately is an analysis of a recent mortgage pool with an incredible  15% already in foreclosure. Yet 92% of that pool is still rated AAA.  Toss in the muni market stress, and month-end statements will look darn ugly. 

From Mish Shedlock, one of the sharpest tools in the shed, and definitely worth your RSS feed. (Ask your kids and grandkids if you’re not sure what your RSS feed is. No, it’s not a new Monsanto concoction.)

http://globaleconomicanalysis.blogspot.com/2007/08/no-bids-for-corporate-bonds.html

Flight to Safety

Earlier today I noted there was a Flight to Safety as the yield the one-month Treasury bill fell 160 basis points to 1.34 per cent. The yield on three-month Treasury bills tumbled to 2.51 per cent, 123 basis points below Friday’s close – a sharper fall than during the October 1987 stock market crash.

I figured that before this debt and credit addition is all said and done, we’re going to have notable corporate bankruptcies. I just didn’t think we’d get one so quickly.

Is your money market account safe? A large money market provider in Chicago filed for bankruptcy late last Friday after its big bets went awry.

Ask your broker these questions (copy and paste if you want):

“As soon as possible, please reply in writing to my address of record to these questions:

1) Is my sweep settlement account a money market fund or a money market demand account? Is it insured by SIPC or FDIC? What limits apply?

2) Has the investment adviser, investment manager, or principal for my money market fund or sweep settlement account ever defaulted or “broke the buck” on a money market fund?

3) Does the duration of investments within the money market fund match that investment objectives of the fund.

4) Have you heard any information as to the safety of my money market?

5) Is there a course of action you would recommend?

Thank you for your prompt attention to this important matter.”

If your broker doesn’t respond immediately with the answers, he’s either
a) hiding under his desk counting the gold doubloons;
b) ducking your question;
c) doesn’t know;
d) doesn’t WANT to know; or
e) in Vegas at a sales contest victory party.

By the way, your broker’s first inclination will be (because of human nature) to crap his pants and wonder himself, is his own money market safe? When he finds that out that answer, he will gladly let you know.

Here some perspective: Central banks injected $300 billion into the world in the past nine days (as of Friday 8/17).

Total avg daily GDP for Canada, EU, USA is roughly $80B per day.

Central banks created $300B.

Total GDP for that nine day period was $720B.

Yep, 40% of the total genuine economic output for that period was wiped out by inflation, e.g. false money created out of thin air.

Somebody is scared.

And no, I don’t think years of Wall Street’s credit addiction and wildly manufactured whiz-bang financial products can be liquidated, resolved, and otherwise corrected in just 20 days.

Also, please note that when it comes down to chosing between a) fighting inflation and b) saving Wall Street, the Central Banks will leave the pensioner dangling every time.

Two solutions for you: Read here. Read here.

As usual, Mish lays out the data and walks you though it. For now, this mess is called “Subprime,” named after the category of home buyer that doesn’t quite have high enough numbers (credit score or cash). Who knows what it will devolve into, but exect Congressional Hearings and newsprint sobstories on all the people that can’t finance a home, but WANT to.

http://globaleconomicanalysis.blogspot.com/2007/04/no-spillover-no-contagion-not.html

Edit/Addition: The number of loans at Harley Davidson for bikes that is more than 30 days past due is moving up. Trust the market. Do you think the market sniffed that out two months ago? Is that why Harley has slid from low $70’s to under $60?

When dealing with economic systems built on the shifting sands of fiat money and bubble credit, recessions are necessary to wring out the excesses of the previous growth period. It’s always disconcerting to watch friends and neighbors lose their jobs as businesses re-shuffle, or have businesses suspend growth plans as credit contracts and lenders pull in their risk profile, and trading partners reassess plans themselves.

The trouble we currently face is that the greater and longer the boom, the harder the subsequent bust. Throw in the fact that governments always exacerbate the effects of the recession by a) not realizing we’re heading toward one, b) denying it when we’re in one, c) sweet-talking away the severity of it, and d) by the time the economy is actually out of recession and recovering they will start passing economic ‘aid’ packages creating further distortions.

Mike Shedlock (Mish) runs a great global econ blog, and his latest posts on recession indicators are worth the time to read (if you’re into econ.) The short answer is that there are about a dozen indicators the indicate we are currently in recession. Does it feel like one yet? How will we know for sure? When they lead the evening news with politicians denying it.

What does this mean for investors? Wait and see. The market will dictate our actions, not the history books.

I will tell you this. When we’re in the depths of the recession, junk bonds will crater in price as defaults rise and market shuns them. When things look their worst, the credit spread between junk bonds and the treasury will widen dramatically to where many junks bonds are yielding 10%(+) more than U.S. Treasuries. Friends, that what fear smells like in the market. At that point, I plan to start buying junk bond funds. (I’ll use funds to distribute risk against any individual issues.) The likely result: as the market returns to normal, the market price of the bond portfolio improves and I get a juicy yield to wait. Hold at least one year. Rinse. Repeat. (Hat tip to GPE for showing me the idea during the last recession.)

Right now that difference in yield (spread) between the junk credits and Treasuries is very narrow, recently reaching the lowest point in a decade. There is just a lot of money chasing yield right now, and it’s not (yet) scared away by default risk. Things always look great at the top. Unless you like riding through big declines in market price and suffering defaults, avoid junk debt until risk is adequately priced in.

Thanks to Mike’s encouraging words, I’m rolling out this blog to accompany my website, www.HeyerCapital.com. Since I often write to clients about various topics of the day, I must take advantage of the web and put my thoughts out there for the world to see.

A little bit about my business. I am the Owner of Heyer Capital, LLC, an independent Wisconsin Registered Investment Advisor (RIA). What does this mean? In a nutshell, I manage money and make investments for regular folks. Call me and I’ll send you my Form ADV that more completely describes my business. My goal is to grow wealth when the market is good and protect it when there is weakness.

I draw ideas from across the markets and the web. One of my primary sources is the Investor’s Business Daily. I strongly enourage every investor to visit their website (www.investors.com) and read their Investor’s Corner archives and their Learning Center.

I intend for this blog to be an outlet for my thoughts and ideas, and hopefully you can pick up a few pointers on how to read stocks and the general market. If I mention a stock, ETF, or fund, then I will also mention whether or not my clients or I have a position in it. That’s only fair, right?

Importantly, when I mention an investment or idea, do not construe it as a recommendation for you to act on. I presume we’d all like to make money in the world’s capital markets, and I’ll publish my ideas with that goal in mind. I cannot possibly know, though, if it makes sense in your personal financial situation and goals.

Please do not hesitate to leave a post or ask for a clarification about something. I don’t mind fielding questions about specific stocks. Just let me know if you want to keep your question offline. My preference is to make this useful for everyone.