Shoring Up Money Market Funds

Ulli Uncategorized Contact

Just because its not headline news, does not mean that all is well in “money market land.” I have repeatedly advised not to play the sucker’s game and invest idle cash in high-yielding money market accounts, since they are the biggest investors in toxic Subprime slime.

On that topic, MarketWatch reported that Legg Mason swings to quarterly loss. Here are some highlights with my emphasis added:

Legg Mason Inc. posted its first quarterly loss as a public company in what its chief executive said was among the toughest periods it has ever seen, as the investment manager also announced plans to raise $1 billion through an equity offering.

Legg Mason said the results for the three months ended March 31 included a $291 million charge related to previously announced support for money market funds hit by the credit storm. The company has buttressed troubled structured investment vehicles, or SIVs, that are held by money market funds.

Other investment managers, such as Bank of America Corp. and Wachovia Corp. have been forced to provide support to their money market funds to prevent them from “breaking the buck,” or falling below a net asset value of $1 per share. Legg Mason has cut down its exposure to SIVs, which were threatened by liquidity issues.

Legg Mason’s moves to support its money market funds have been “prudent and proper,” and the company “will stay vigilant,” Fetting said. He acknowledged the lagging performance of the U.S. equity managers, and getting them to “return to form” is a “top priority.”

Of course, support of money market funds is prudent and proper. The alternative is that investors would be leaving in droves if a company “breaks the buck.” The unknown simply is who has how much exposure and will other troubled companies be cash-rich enough to bail out their money funds?

You don’t want to wait to find out, which is why I recommend to move idle cash to a U.S. Treasury only money market fund at your custodian (minimum is usually $100k). You have to realize that keeping cash in a money market fund will never make you rich; it is only a temporary parking place during times of great uncertainly where you want absolute safety with no risk.

Once market trends resume, we will look for new opportunities to make our money grow.

No Load Fund/ETF Tracker updated through 5/8/2008

Ulli Uncategorized Contact

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Continued sideways activity kept us away from a new domestic Buy signal.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved now +1.35% above its long-term trend line (red), which means we remain close to breaking out to the upside of the neutral zone (+1.50%).



The international index dropped to -2.81% below its own trend line, keeping us in a sell mode.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Riding The Roller Coaster

Ulli Uncategorized Contact

Today, the major indexes meandered sideways with an upward bias; however, they closed higher recouping some of yesterday’s losses.

Our Trend Tracking Indexes (TTIs) recovered as well and the domestic TTI broke out of its neutral zone (+1.50%) and currently sits +1.58% above its long-term trend line. Yes, I feel like I sound like a broken record when repeating again that we need to see this level supported for a couple for trading days before making new commitments to the domestic arena.

After today’s close, the world’s largest insurance company laid an “AIG” by reporting that it suffered a $7.81 billion first-quarter loss, its second big loss in a row. While this should pressure the markets tomorrow, you never know these days, as some might interpret this as the worst being over and good times are here again.

Shifting Back To Neutral

Ulli Uncategorized Contact

If you find the constant lack of direction and follow through that the market has been throwing at us maddening, you’re not alone. Yesterday’s broad retreat was a reminder again how fickle this market has become and that at any given time any event can derail the upward momentum.

While we were within striking distance of a new domestic buy signal, our Trend Tracking Indexes (TTIs) have now again retreated into the neutral zone, which is an area defined as a range of -1.50% below its long-term trend line to +1.50% above it.

Yesterday’s sharp pull back has positioned our TTIs as follows:

Domestic TTI: +0.96%
International TTI: -2.57%

Internationally, nothing has changed since our sell signal on 11/13/07.

Domestically, as you know from my weekly updates, we have been waiting for a new buy signal, which almost, but not quite, materialized several times over the past few weeks.

We’re now back to the drawing board waiting for this uptrend to show some legs before making any further commitments. On average, we’re about 70% in cash with the balance being invested in those areas that have generated good upward momentum independently of the domestic U.S. market.

Upside Break-Out

Ulli Uncategorized Contact

Despite a sharp drop after the market opening on Tuesday (see chart), the major indexes recovered and closed higher with solid gains. In the face of $123 crude oil, and predictions of prices moving into the $150 to $200 area in the next 6 to 12 months, the markets resisted any sell off attempts.

Our domestic Trend Tracking Index (TTI) broke out of the upper band of the neutral zone (+1.50%) again and sits now +1.64% above its long-term trend line. If we can stay above the +1.50% level for a couple of trading days, that will constitute a new domestic Buy signal.

In the meantime, our holdings in the Latin American markets as well as the Transportation Index have moved up nicely, and I will add a second increment. Some domestic no load funds have now crossed their own individual trend lines as well, which will bode well for this uptrend if a Buy signal is in fact generated.

The International TTI improved as well, but still remains below its trend line by -1.29%. I will keep you posted via this blog as to day-to-day changes.

Stupid Quote Of The Year

Ulli Uncategorized Contact

Leave it up to bankers, the main contributors to the mortgage crisis, to come up with the stupid and ignorant quote of the year (or possibly of the century). Reuters reports in “Bank of America-Countrywide to curb risky mortgages:”

Bank of America Corp said on Tuesday it plans to stop offering some riskier mortgage loans after it finishes buying Countrywide Financial Corp., the largest U.S. mortgage lender.

The second-largest U.S. bank said the combined businesses will not offer “option” adjustable-rate mortgages, which let borrowers pay less than the interest due.

It also plans to “significantly curtail” other non-traditional mortgages, including some loans that don’t require borrowers to fully document income or assets.

The Charlotte, North Carolina-based bank also said it will limit prepayment penalties and offer enhanced protections on interest-only and “hybrid” adjustable-rate mortgages. The latter carry fixed interest rates for a period of time, typically five years, and then adjust.

Bank of America will continue to offer loans eligible for purchase by mortgage financiers such as Fannie Mae and Freddie Mac, as well as adjustable-rate mortgages, and mortgages with a 10-year minimum interest-only period.

“We recognize this tightening, by definition, restricts the availability of credit to some borrowers,” said Bruce Hammonds, Bank of America’s global consumer credit executive. “However, this will help ensure that those who get loans can afford to repay them.”

[emphasis added]

Duh? As opposed to doing what? Extending credit to anybody who can fog up a mirror? Hello Mr. banker; a fact that you may have been missing is that some people are simply not credit worthy, should not have credit extended to and should not own a home. Has this realization now finally set in, where it should have been part of responsible loan underwriting all along?

Ok, so ignorant, selfish and greedy bankers are a pet peeve of mine. If you are one, tough! This blog is not about political correctness but saying it as it is. Ah, I feel better; I had to get this off my chest.