We pointed out in our May and April updates, that the Fed may be on hold for a while. We also suggested that May could be a good time to sell and go away. As we enter June, it looks more and more likely that the economy is heading for uncertain times as a result of unnecessary trade wars with China, Mexico and perhaps others initiated by our autocratic president.

I have highlighted No Penalty CDs in the recent past. As we crossed through May, these became more and more attractive by the day. These products offer the advantage of a higher interest rate and the certainty that the rate will be applied for about a year. At the same time, No Penalty CDs give you the flexibility to access your money without penalty after 10 days should you need the money or should rates rise (which is still a distinct possibility if inflation is an outcome of these trade wars). One disadvantage is that you ordinarily cannot make partial withdrawals, although you can always terminate the CD and reinitiate it provided rates do not fall.

As a result of their flexibility in this uncertain period, No Penalty CDs comprise recommendations 1, 2 and 3 for June.

1. Purepoint – 13-Month No Penalty CD, 2.50%, $10,000 Minimum

Although Purepoint’s rate has fallen by 10 basis points since being initiated earlier this year, even at 2.50%, Purepoint’s No Penalty CD rate matches that of the best online savings account.

2. Marcus – 13-Month No Penalty CD, 2.35%, $500 Minimum

Marcus’s product can be easily set up online, has a lower minimum balance requirement than the others and can be terminated in seven days.

3. Ally – 11-Month No Penalty CD, 2.30%, $25,000 Minimum

Ally’s No Penalty rate is not as competitive as Purepoint’s or Marcus’s, it minimum balance requirement is higher and its term is only 11-months (a longer term is actually better as it provides more protection should rates fall). Yet, Ally makes the list because they have been offering this product for years, and it is super easy to terminate the CD and initiate a new one online should rates rise, should you require a partial withdrawal, or should you wish to extend the end date.

Check out other No Penalty and Special Term CD rates here.

The market for savings and money market products – particularly in the online space – continues to be very competitive and rates have not fallen very much as a result of increased economic uncertainty and the fall in long-term rates. They have not fallen yet. Savings rates are not guaranteed and could change from day-to-day. One strategy to protect your interest rate is to look for new entrants in the online space that are spending a fair amount to gain deposits and are therefore unlikely to slash their rates for some time.

Two new entrants in May that have caught our attention are:

1. Susquehanna Community Bank, 2.53%, $100,000 Minimum
2. BMO Harris Bank, 2.45%, $5,000

While the rates are good, some of these new entrants are so untested that there is some risk to this strategy, and you may wish to wait to see the comments on BestCashCow about some of these banks before opening an account.

See and compare all of the best online savings rates here.

Have a great month.

The two most common questions that we get at BestCashCow are “which direction are interest rates going?” and “how do I position myself now if the Fed raises or lowers?”

The answer to the first question drives the second.

Never in the 14 years since this site was founded has it been so difficult to determine the direction of interest rates.

On the one hand, it is unprecedented to have an Administration that knows no legal, ethical, moral or other boundaries and which will stop at nothing to win re-election in 18 months. Trump himself, Kudlow and others will continue to direct unprecedented lobs at the Federal Reserve and Jerome Powell, its Chairman, in order to persuade them to lower rates between now and November 3, 2020.

Powell already changed the Fed’s guidance in November 2018 as a result of Presidential harassment, leading Wall Street analysts to predict that the next Fed move is to lower the Fed Funds rate from its current range of 2.25% to 2.50%.

But, Powell’s original position was that the Fed needs to bring the rate to a neutral position around 2.85% and he has recently used the absence of inflation as his grounds for stalling here. It is highly likely that any prolongation of a tariffs war with China will cause inflation, perhaps even strong inflation if there is also a rise in the price of underlying commodities. Therefore, I think it is impossible to count out the possibility of at least one Fed raise before the end of 2019.

I therefore continue to advise people to keep most of their money in savings and money market accounts and no penalty CDs. However, one-year CDs that offer rates at or above 2.80% and have early withdrawal penalties of only 3-months or less are available online and locally, and I think that they may make sense for some of the money that you know you will not need during that period. I would avoid longer-term CDs for the moment as they are not offering a significant premium over shorter term CDs.

See our latest monthly update for more information on some of the best products currently available.

I am watching Bloomberg and CNBC this morning as Uber prepares to come public. The discussion among analysts is on whether Uber and Lyft should be trading at 4 times sales or 6 times sales. Lyft is a pure play US taxi service. Uber is more international, and plays in a whole series of other industries, including transport and food delivery. Lyft’s top line is growing much faster. Hence, presumably one merits a premium over the other.

The discussion strikes me as patently absurd.

To be clear, the last time that analysts suddenly switched from trying to rationalize equity pricing at multiples of sales was, umm, March 2000. The argument was made that internet stocks could create such efficiencies that a top line multiple could be applied. But, those companies had wide margins at the time. Uber and Lyft today are operating at margins of around 20% that are continuing to compress.

These types of valuations that are being applied to Lyft and Uber are predicated on robotaxis replacing cars that require a driver in the immediate future and on automation leading to wider margins.

Now, I am a big believer in the future of automated driving, but I don’t see that necessarily expanding the margins of either Uber or Lyft operating fleets of driverless cars in 2020. Even Uber CEO, Dara Khosrawshahi, says it will be “quite a few years” beyond 2020.

When the industry becomes completely automated (whether that happens in 3 years, 5 years or 10 years) and Uber and Lyft are operating fleets of driverless cars, their margins will not be expanding at the rate that would justify a sales multiple of four or six times sales today. Rather, the margins will continue to compress as the market for robotaxis will be perfectly competitive (as will the market in every other industry in which Uber participates).

So, I believe that even under the most realistic and optimistic circumstances, a fair valuation for companies operating in this industry would target a PE of about 10x in 5 years or a price to sales of about 0.4x to 0.6x. That would make both of these companies overvalued by 7 to 10x. And, I intend to invest in both of these companies when they trade at those valuations.