I am a big proponent of keeping money that you absolutely cannot afford to lose in savings and CD accounts and BestCashCow.com is the best place to find and identify the appropriate online and local accounts for your needs. It makes sense in the current interest rate environment for investors to look carefully at placing very small amounts of their cash that they want to be sure is secure, but do not need to access for a long period in bank-issued Structured Notes in order to avail themselves of the opportunity to earn higher rates over time. While we have seen such Notes in the past offered by the likes of Morgan Stanley, Citibank, Chase, Goldman and HSBC, the offerings currently in syndication are offered by Barclays Bank PLC, the British bank rated A-/A3, and Natixis, the French bank rated A/A2.

The Note currently in syndication by Barclays Bank PLC is a 15 year Note paying 10% for the first year and then as much as 10% in subsequent years (on quarterly payment dates) based on the difference between the 30 year less the 5 year Constant Maturity Swap (CMS) rate. The Note is the same structure as an HSBC Note that I wrote about here and to a Citibank Note discussed here. Unlike those notes, this one is using a multiplier of 5 that offers a higher likelihood of getting closer to 10% (the 30 year CMS needs to stay only 2% above the 5 year on quarterly measurement dates for payment to 10%). The Note is callable after the first year and on each quarterly payment date, which is a feature that is unattractive, but does not jeopardize the 10% that this Note produces during the first year. Those interested in this Note can learn more about it by referencing CUSIP 06741UBK9 or ISIN No. US06741UBK97.

A Natixis Note in syndication is a 20 year Note that pays 11% for the first year and then as much as 11% in subsequent years (on quarterly payment dates) based on the difference between the 30 year less the 2 year CMS rate (the multiplier is 4). The Note does not pay on quarterly measurement dates if the S&P 500 trades more than 25% below its price on closing, and is not callable. This Note is similar in structure to a JP Morgan Chase Note that I wrote about last Fall. The main difference from the JP Morgan Note is that it is 20 years, instead of 15. Those interested in this Note can learn more about it by referencing CUSIP 63873HKC7or ISIN No. US63873HKC78

The Natixis Note is more interesting than the Barclays Note for several reasons – it is not callable, is based on the 30-2 spread instead of the 30-5 spread, may pay a higher interest rate (has a higher cap), and is issued by a credit that is currently rated to be slightly stronger. Nonetheless, I have had a tough time getting my hands around this one for two reasons. First, while 15 years is already certainly pressing the length of time for which anyone should lock up their money in an illiquid investment, 20 years is just much too long. Second, I find the S&P contingency something that is different to stomach, especially as the S&P could easily fall more than 25% and stay down there for a lengthy period of time. I therefore personally bought a small stake in the Barclays Note, but avoided the Natixis one.

Structured Notes are interesting ways to pick up yield, but investors should always take a very measured approach. Both of these Notes are illiquid and involve real interest rate risk, and could very well wind up paying little or no interest for lengthy periods of time.

By now you've probably read or heard about the Heartbleed bug. Discovered one week ago, the bug makes encrypted Internet communication vulnerable to being hacked and easily decrypted. It is a particularly insidious bug because it leaves no trace of being hacked, so if information is stolen, the theft is never detected. Still, it is important to remember that as of now, there is no known case of hackers using the bug to steal information.

So how much of a threat is it really, and what can you do to protect yourself?

Are You Impacted?

The general consensus from the media and security experts is that people should be concerned and vigilant about the bug. Mark Nunnikhoven, a security expert at Trend Micro said that about 17% of secured sites on the Internet are vulnerable to the Heartbleed bug. The website Mashable.com has done a nice job putting together a list of major sites that were impacted by the bug. Some large sites include: Netflix, Youtube, and Gmail. On any of these non-banking sites, your personal information and credit card could be compromised. So, although they are not banks per se, you might still conduct financial transactions on them.

Large Banks Not as Impacted

The list from Mashable also shows that large banks have been largely unaffected by the bug. Big banks have multiple layers of authentication and rely on more than just a secure certificate to keep their customer's information safe.

Smaller Banks May Be Vulnerable

What about smaller banks? I went to several smaller bank sites and used a Heartbleed Vulnerability testing tool. In five out of five cases, I received the message below.

Server software: Apache

Was vulnerable: Possibly (known use OpenSSL, but might be using a safe version)

SSL Certificate: Possibly Unsafe (created 8 months ago at Aug 16 00:00:00 2013 GMT) Additional checks SSL certificate history yielded no new information

Assessment: It's not clear if it was vulnerable so wait for the company to say something publicly, if you used the same password on any other sites, update it now.

You can test your own bank using the tool found here.

In contrast, this is the message I received when I tested Bank of America's website:

Site: www.bankofamerica.com

Server software: Not reported

Was vulnerable: No

SSL Certificate:SafeAssessment: This server was not vulnerable, no need to change your password unless you have used it on any other site!

This doesn't mean that smaller banks have the bug but if you receive the Possible message using the test, you should call your bank and ask if the bank was vulnerable to the bug and if they have fixed it.

Conclusion

While you shouldn't panic, it would be wise to change your passwords if you use any of the sites listed as vulnerable. While it's unclear if this vulnerability was ever exploited, it makes sense to change passwords on a regular basis anyway. So, use this opportunity to upgrade your own personal digital security. One caveat though. You might want to wait a few days or even a week to ensure that all of the vulnerable sites have upgraded their software. Otherwise, you could be giving out your new password to an insecure site. In the meantime, check your bank statements and credit card activity regularly to make sure you don't see anything out of the ordinary.

I recently got a call from a broker at a well-known investment bank who was excited to tell me that he finally had a new series of high yielding products to sell. The products - called a Contingent Income Auto Callable Security - pay a fixed rate of return for a fixed period provided that a given target equity trades at our above a target price and are each issued by an investment bank (such as Morgan Stanley or Royal Bank of Canada).

After looking at several prospectuses, the issue that struck me as most interesting was a one year Note (CUSIP: 48127E510) underwritten by Morgan Stanley against the equity of Yelp (NYSE: YELP). Yelp was trading at $90 a share on the March 19, 2014 issuance, and the terms of the issue are that it will pay a quarterly dividend amounting to 15.6% a year so long as Yelp is trading at more than 50% of its value at issuance on each quarterly measurement date (i.e., the Note pays 3.90% a quarter as long is Yelp is trading at or above $45 a share). The quarterly dividend is forgone if Yelp is trading below $45 on a quarterly measurement date. At the end of the 12-month period, you receive back your full principal provided Yelp is trading above that threshold level. If it is trading below, you receive back the equity that you would hold if you were to purchase the stock on the issuance date. In other words, if Yelp is trading below $45 on March 19, 2015, you recover some percent of your principal that is below 50% and equal to the stock price on that date divided by its March 19 price of 90.

While many will feel that the downside on Yelp is negligible, it should be noted that Yelp traded at $22 a year ago, and could be shut down in two seconds if Google were to adjust its search algorithm. It should also be noted that on March 20, 2014, the day after this Note’s issuance, the stock closed at $84, having fallen 8% already. On the other side, it could double or even triple over the next year as it did over the last year. And, if it does, you will have swapped all of that upside for a 15.6% return. In other words, you are giving up your upside for 15.6% and still taking on limitless downside exposure.

The dividend offering in the Yelp Note is much greater than those offered in the other similar Contingent Income Auto Callable Securities (most offer a 5-7% yield, which in some cases is only 2x the underlying stock’s dividend) and some have thresholds where the threshold for a loss of principal is only a 20% decline in the underlying equity. In other words, Yelp is the most compelling offer that I saw in terms of yield and arguably had the least risk to principal. The other issues therefore should certainly be avoided.

But, the Yelp issue too should be avoided. As you can see from the example, you have limitless downside, and because you don’t own the stock, you won’t be able to sell the stock or even hedge it easily if it should begin to fall. You are also giving up your upside in return for a fixed yield that, while attractive, is not commensurate with the risk to this highly volatile name. To boot, you are assuming credit risk of the issuing bank.

Bottom Line: Unless you are somehow running this trade as a hedge against a short position in Yelp or can somehow otherwise hedge a contingent income auto callable security, you should avoid it.

Full disclosure: The author has never had a position in Yelp, does not have a position, and is not recommending any position – long or short – in the stock.