Without great fanfare, this problem has begun to wind down.
For me, the auction rate security problem was the cause of many sleepless nights. In the middle of February, my broker suddenly let me know that all of my cash which he had advised me to move into auction rate securities over the last several years, was illiquid until further notice. He told me that the auctions had failed and that I would be getting higher rates to compensate me for my loss of liquidity. He could not assure me when I would get out of these bonds which led to many sleepless nights as I needed the liquidity.
As the months rolled by, the excuses mounted, as did the obvious and clear indicators of impropriety on the parts of all of invvestment banks (see some of the earlier acticles posted by me and others on BestCashCow.com). Little by little, one by one, many of these things got called away. It started with the municipal and state issues that did not want to, or could not, pay the heavy default rates, and earlier this month, some of the major financial institutions that use auction rate preferreds to leverage their portfolios, including Nuveen, finally gave into the court of public opinion and got rid of theirs.
I understand that Pimco and Blackrock still have not agreed to refinance or refund the holders of their crooked issues. Folks at these organizations should be ashamed that they are continuing to force investors to be illiquid so that they can get higher returns. I believe that they soon will come under pressure to get rid of their auction rate preferreds, leaving these instruments to be a remnant from 2008.
Markets are tanking. This is a terrible time to be invested.
Stock markets are just beginning a long decent.
Commodities have done well, but that has been largely driven by hedge funds. The funds will now sell to preserve gains (cover losses from equity markets). There will be a cascading effect across all commodity classes which will be exascerbated by a global market decline.
Inflation is spiraling out of control. The Fed is not addressing it, and now looks increasingly unlikely to do anything. Treasury yields on 2 year, 5 year and 10 year Treasuries have fallen by 30 bps over the last week. Your cash will earn less now in spite of inflation.
Cash is still the best place to be for the moment. I think investors though should be jumping on some of the short term CD offerings before they go away (one year or less is my preference). These rates are being held at these levels as banks compete for deposits, but they are unlikely to stay there now as we head into a deep, deep recession.
These are scary times folks. It is OK to run for cover.
Prospect Mortgage issued a press release yesterday saying it was acquiring Indymac's retail mortgage branches. The release reads in part:
(Northbrook, IL, July 8, 2008) – Prospect Mortgage has signed an agreement to acquire the majority of IndyMac Bankcorp’s retail mortgage branches. Terms of the transaction were not disclosed.
The transaction encompasses approximately 750 employees along with more than 60 branch offices which will rebrand as Prospect Mortgage. John Johnston and Ron Bergum will remain in leadership roles with the retail branch group and report to Mark Filler, CEO of Prospect Mortgage.
I spoke with Prospect Mortgage and this transaction just covers Indymac's mortgage business. They are not purchasing other bank functions or the bank's deposit business. Indymac has stated that it plans to exit the retail mortgage business and this looks like a logical step.
