We got into a discussion the other day (over at the Helium website) about the differences between money market funds and CDs. While we're at it, the discussion contained the key phrase money market funds - not money markets, a wide-spread misnomer.
Meanwhile, money market funds are actually mutual funds that are managed, and they invest in commercial paper and other short-term cash equivalents, typlically called "obligations". The only change that takes place in a money fund [of importance to investors] is its dividend yield, generally expressed in annualized terms but calculated over periods of 7 and 10 days (mutual funds, including money funds, don't pay interest). The yield will fluctuate, but not the principal.
The share price has always been one dollar. The shorter the term of certificate, which is most often between 90 and 180 days, the safer it is. That characteristic alone helps to make the decision a lot simpler when the choice might be based on the annualized yield.
To go a step further, the most compelling reason to "invest" in a money market fund is to have liquidity - which is to say, write checks, make frequent withdrawals and invest in other vehicles - and getting a better dividend rate (not interest rate) than a short-term CD.
Certificates of Deposit pay more interest when the date to maturity is further away. Their main attraction to knowledgeable customers is that they are guaranteed by way of insurance. Money market funds can never be insured.
Obviously, there is a wide-spread misconception about the nature of money market funds for a large population of investors. (I thought this platform was too good an opportunity to pass up.)
Over the years, including our recent interaction with Helium, we have identified a class of people that believes money market funds invest in the stock market. This is a gross misconception. For the sake of making the connection, go no further than the name of the fund(s). M-o-n-e-y. Money. For further clarification, please take a quick glance at the SEC's definition of the security.
In addition, they are not considered viable investments for long periods of time. Sure, they're as safe as can be. So is a Hummer! Why don't we all go out and buy one! There are thousands of people who put half their savings into these investments. It's wrong, with a capital 'R'. It's like driving from L.A. to San Diego with your foot on the break pedal. Don't do it.!
Whew! That felt good.
Hudster
Friday, March 30, 2007
Friday, March 16, 2007
Rich Alan, Poor Alan
At about the time my story, "Stock Power (The Novel)" became more than a notion, I detected the unsettling coincidence of market movement with public discourses from Alan Greenspan. This would be in 1996, just prior to his "irrational exuberance" speech, to be more precise. It wasn't long before a sparse number of erudite financial journalists aired similar viewpoints.
Now, that Mr. Greenspan is no longer the country's official economic "catalyst", you would expect that he could slither around the world making his high priced speeches to private audiences without much notoriety. Not so.
Once again, enough of the right (or wrong) people have succeeded in pinning Wall Street's latest jitters on Greenspan's recently published views on the future of the credit markets. That's incredible! Let's see if I have this straight...
We're in the woods taking a group picture of the wife and kids with our super-duper digital camera we purchased a week before we went on vacation, and there's a grizzly lurking in the background (i.e., 0% financing, free blackberries and bad credit re-fies). Would we really need Alan Greenspan to come along and say, "Perhaps you might want to crop that grizzly over there out of the picture, Mr. Consumer." Better still, would it be Mr. Greenspan's fault that the bear presented an inconvenience, in the first place?
I always considered it essential, as stockbroker and investment counselor, to ask investors if they thought sequential refinancing was a sound economic strategy. Nearly everyone with whom I could hold a conversation on the subject concurred that the federal government had over extended its credit worthiness - and that was in the mid-nineties! What's bad for the gander is doubly bad for the geese, in this writer's opinion.
I have not studied economics formally; but there was never any doubt in my mind that falling interest rates were a definite indication that we were headed for a credit crunch. It's a good bet that conditions that existed in the late '70s will never be repeated; and I expect [federal funds] rates will move in ranges below 6% for many years to come. That kind of forecast portends a flat economy and a much riskier investment environment for people looking to retire rich.
Obviously, the markets will vibrate to the tune called the "Greenspan Effect" a while longer. I wouldn't be surprised if his motivation for making speeches is not entirely money driven. In which case, it might not be a bad idea to stay tuned to what he has to say.
Hudster
Now, that Mr. Greenspan is no longer the country's official economic "catalyst", you would expect that he could slither around the world making his high priced speeches to private audiences without much notoriety. Not so.
Once again, enough of the right (or wrong) people have succeeded in pinning Wall Street's latest jitters on Greenspan's recently published views on the future of the credit markets. That's incredible! Let's see if I have this straight...
We're in the woods taking a group picture of the wife and kids with our super-duper digital camera we purchased a week before we went on vacation, and there's a grizzly lurking in the background (i.e., 0% financing, free blackberries and bad credit re-fies). Would we really need Alan Greenspan to come along and say, "Perhaps you might want to crop that grizzly over there out of the picture, Mr. Consumer." Better still, would it be Mr. Greenspan's fault that the bear presented an inconvenience, in the first place?
I always considered it essential, as stockbroker and investment counselor, to ask investors if they thought sequential refinancing was a sound economic strategy. Nearly everyone with whom I could hold a conversation on the subject concurred that the federal government had over extended its credit worthiness - and that was in the mid-nineties! What's bad for the gander is doubly bad for the geese, in this writer's opinion.
I have not studied economics formally; but there was never any doubt in my mind that falling interest rates were a definite indication that we were headed for a credit crunch. It's a good bet that conditions that existed in the late '70s will never be repeated; and I expect [federal funds] rates will move in ranges below 6% for many years to come. That kind of forecast portends a flat economy and a much riskier investment environment for people looking to retire rich.
Obviously, the markets will vibrate to the tune called the "Greenspan Effect" a while longer. I wouldn't be surprised if his motivation for making speeches is not entirely money driven. In which case, it might not be a bad idea to stay tuned to what he has to say.
Hudster
Monday, March 12, 2007
Who Ate My Pancakes?
It might sound silly to start my next career preoccupied with what happened the day I met a realtor for breakfast a couple of years back when I was in the market for a new house. But, the fact is that breakfast is my favorite meal of the day. Not dinner. Not lunch. Breakfast.
Let me explain. When I start my day, I'm almost always in a good mood, particularly when I've had my six hours of sleep. Even when it's raining or snowing cats and dogs, I'm in a good frame if I don't have to leave the house.
Anyway, about my breakfast. It's usually my quality time - with a great pot of brewed coffee, freshly diced fruit, a toasted bran muffin and cream cheese with Mozart (18th century rapper) in the background, the Journal in the foreground (at home, of course). You don't top something like that.
So, I'm sitting in a favorite restaurant one day, waiting for this realtor to show up at 8 in the morning. Let's call her Shelley to protect the innocent (now, how do you know "Shelley" isn't her real name?) At 8:15 Shelley hasn't shown up. I was hungry; so, I put in my order for a stack of buckwheat cakes topped with strawberries and sour cream.
A couple of minutes later, in walks Shelley. She was huffing and puffing so hard, I imagined for a split-second that she had to push the car to the restaurant. She apologized and explained that traffic was snarled and it made her late. I had already assumed as much.
What happened in the ensuing moment was a near tragedy. Shelley placed her order for a soft boiled egg and toast. Then, she asked me if she could be excused to use the ladies room. I wished her well.
I was in the process of ravenously wolfing down my second delicious bite of my stack of cakes when she returned. Suddenly, I noticed an horrendous odor. It was a cross between pine needles and beet juice. There was no doubt in my mind about its origin.
"What on earth is that fragrance you're wearing?" I asked.
"Oh it's a new cologne I discovered when I was in Acapulco last December. Do you like it? It's called Baja Rain, by Juan Dupre!"
"You're kidding me!" I said. "Baja Rain? As in rain from the sky?"
"Exactly!" Shelley said, misconstruing my curiosity for a sign of approval. "It's sensational, don't you think? Juan Dupre is going to be hot, soon. I just know it."
I decided that what Shelley knew about colognes was extremely questionable. While Shelley started chomping on her 3-minute egg, my appetite for food had taken flight. We had a nine o'clock appointment to look at a house. All I had to do was survive the breakfast that I had anticipated to be an ideal spring board for Shelley and me. I could only hope, at 8:40 a.m., that the morning would not be a total waste.
It wasn't. I was very dexterous when I gave Shelley the reasons I needed to drive my own car to the location in question. She did not take offense and jumped into her car to lead the way to what she probably hoped would be a profitable experience. For my part, I drove the distance with all four windows open. The treatment was a relief. Later that morning, I sprayed the interior of my car with an Arm and Hammer air freshener made by Church and Dwight Co. (NYSE-CHD). (Great, great stock, by the way - worth owning before it hits 50. How do I know? I am senior analyst for a fast-growing advisory firm.)
Did I like the house? It was alright, for a forty-year-old frame and brick bungalow, but nothing special. I thought I might work the owners on price for a while.
Let see, so what's the point of this theme (better yet, what is the theme?).
Odors, including the best fragrances can kill an appetite for food. People (including men) ought to be careful about using fragrances, especially in the course of doing business. That about covers it. Don't forget what I said about CHD! (Is this a plug? What do you think?)
Disclosure: "Baja Rain" is a fictious title and does not exist as a product, to my knowledge.
Hudster
Let me explain. When I start my day, I'm almost always in a good mood, particularly when I've had my six hours of sleep. Even when it's raining or snowing cats and dogs, I'm in a good frame if I don't have to leave the house.
Anyway, about my breakfast. It's usually my quality time - with a great pot of brewed coffee, freshly diced fruit, a toasted bran muffin and cream cheese with Mozart (18th century rapper) in the background, the Journal in the foreground (at home, of course). You don't top something like that.
So, I'm sitting in a favorite restaurant one day, waiting for this realtor to show up at 8 in the morning. Let's call her Shelley to protect the innocent (now, how do you know "Shelley" isn't her real name?) At 8:15 Shelley hasn't shown up. I was hungry; so, I put in my order for a stack of buckwheat cakes topped with strawberries and sour cream.
A couple of minutes later, in walks Shelley. She was huffing and puffing so hard, I imagined for a split-second that she had to push the car to the restaurant. She apologized and explained that traffic was snarled and it made her late. I had already assumed as much.
What happened in the ensuing moment was a near tragedy. Shelley placed her order for a soft boiled egg and toast. Then, she asked me if she could be excused to use the ladies room. I wished her well.
I was in the process of ravenously wolfing down my second delicious bite of my stack of cakes when she returned. Suddenly, I noticed an horrendous odor. It was a cross between pine needles and beet juice. There was no doubt in my mind about its origin.
"What on earth is that fragrance you're wearing?" I asked.
"Oh it's a new cologne I discovered when I was in Acapulco last December. Do you like it? It's called Baja Rain, by Juan Dupre!"
"You're kidding me!" I said. "Baja Rain? As in rain from the sky?"
"Exactly!" Shelley said, misconstruing my curiosity for a sign of approval. "It's sensational, don't you think? Juan Dupre is going to be hot, soon. I just know it."
I decided that what Shelley knew about colognes was extremely questionable. While Shelley started chomping on her 3-minute egg, my appetite for food had taken flight. We had a nine o'clock appointment to look at a house. All I had to do was survive the breakfast that I had anticipated to be an ideal spring board for Shelley and me. I could only hope, at 8:40 a.m., that the morning would not be a total waste.
It wasn't. I was very dexterous when I gave Shelley the reasons I needed to drive my own car to the location in question. She did not take offense and jumped into her car to lead the way to what she probably hoped would be a profitable experience. For my part, I drove the distance with all four windows open. The treatment was a relief. Later that morning, I sprayed the interior of my car with an Arm and Hammer air freshener made by Church and Dwight Co. (NYSE-CHD). (Great, great stock, by the way - worth owning before it hits 50. How do I know? I am senior analyst for a fast-growing advisory firm.)
Did I like the house? It was alright, for a forty-year-old frame and brick bungalow, but nothing special. I thought I might work the owners on price for a while.
Let see, so what's the point of this theme (better yet, what is the theme?).
Odors, including the best fragrances can kill an appetite for food. People (including men) ought to be careful about using fragrances, especially in the course of doing business. That about covers it. Don't forget what I said about CHD! (Is this a plug? What do you think?)
Disclosure: "Baja Rain" is a fictious title and does not exist as a product, to my knowledge.
Hudster
Friday, March 2, 2007
What Happened To The Stock Market?
(I thought I would try my hand at media hype and join the fray. It didn’t do anything for me, however; but it was fun trying.)
Headlines across the country were screaming over the incremental drop in the Dow Jones Averages that has not ended since February 12, 2007. Where else can you see excitement over a 4% (533 pt.) loss of equity following behind a run-up of more than 18%?
We could help drive Malox shares higher and boost TV ratings, if we dared. For example: Is the market in a correction pattern or are we headed back to 11,000. Could it be 10,000 or, worse yet, 9,000 before we get our sea legs? No doubt some creative journalist has already thought of this ploy.
One key benefit that we might consider is that recent concerns about the financial markets have provided some relief from the arcane coverage of a much less dynamic political front.
I could not resist shaking my head when reading yet another refried correlation between the market and the contest on capitol hill. This puny but visible media source stated, right on the World Wide Web, that the market needed “...a decisive direction” in the presidential race. Wait just a cotton-picking minute! What will the market need after the election is over…for Al Gore to promise he will stay out of politics forever?
Are the news crews that cover energy prices on a sabbitcal, waiting for their cue to return to work in the next few weeks? Will either Clinton or Obama have an influence on the oil markets when spot crude soars past 70? (Do elephants fly?)
Just for fun, try to imagine any one of the presidential hopefuls sitting across from Wen Jiabao next year and saying to him, “Look Ace, this is how it’s going down.”
Let’s keep it real and keep our eye on mortgage rates and energy prices until the sleeping dragon decides it’s time to eat. We are not naive about the role the media plays in stoking consumer fires. This economy has critical faults that do not make good copy for the evening news. We need to know what those weaknesses are.
More on that subject a little later on.
Hudster
Headlines across the country were screaming over the incremental drop in the Dow Jones Averages that has not ended since February 12, 2007. Where else can you see excitement over a 4% (533 pt.) loss of equity following behind a run-up of more than 18%?
We could help drive Malox shares higher and boost TV ratings, if we dared. For example: Is the market in a correction pattern or are we headed back to 11,000. Could it be 10,000 or, worse yet, 9,000 before we get our sea legs? No doubt some creative journalist has already thought of this ploy.
One key benefit that we might consider is that recent concerns about the financial markets have provided some relief from the arcane coverage of a much less dynamic political front.
I could not resist shaking my head when reading yet another refried correlation between the market and the contest on capitol hill. This puny but visible media source stated, right on the World Wide Web, that the market needed “...a decisive direction” in the presidential race. Wait just a cotton-picking minute! What will the market need after the election is over…for Al Gore to promise he will stay out of politics forever?
Are the news crews that cover energy prices on a sabbitcal, waiting for their cue to return to work in the next few weeks? Will either Clinton or Obama have an influence on the oil markets when spot crude soars past 70? (Do elephants fly?)
Just for fun, try to imagine any one of the presidential hopefuls sitting across from Wen Jiabao next year and saying to him, “Look Ace, this is how it’s going down.”
Let’s keep it real and keep our eye on mortgage rates and energy prices until the sleeping dragon decides it’s time to eat. We are not naive about the role the media plays in stoking consumer fires. This economy has critical faults that do not make good copy for the evening news. We need to know what those weaknesses are.
More on that subject a little later on.
Hudster
Subscribe to:
Posts (Atom)
