Are moneymarkets safe from Disaster?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Are my money market accounts "safe"? How safe are money markets?
-- jack sewell (email@example.com), September 10, 1998
It all depends on what you're anticipating.
The TEOTWAWKI/survivalist believers will tell you that no paper investment is safe; if they are right this is true.
If the banking system jams up and major inflation takes place, your money may be locked away losing much value even though ultimately you get it back from the bank, or some guarantor if the bank goes bust.
Since I'm not a US citizen I don't know the relative safety of money market vs. bank account vs T-bills. In the UK bank accounts are 90% guaranteed on first #20,000 only, by the bank of England. "Gilts" (like T-bills?) are 100% backed by the government.
-- Nigel Arnot (firstname.lastname@example.org), September 11, 1998.
I believe there are two levels of possible risk. One is whether the manager of the fund (someone like Fidelity or Charles Schwab) would be able to administer it without problems in the year 2000. These kinds of financial firms appear to be the organizations most aware of the potential problems and most advanced in their preparations. The second level of risk is the investments in which the funds are actually placed. Some money market funds are in "commercial paper" - which are very short-term promissory notes typically from large corporations such as GE or GM. Other money market funds are exclusively invested in government agency notes, which might be at government levels lower than the federal government. In either case, you need to make a judgment as to the creditworthiness and Y2k-compliant status of the debtor organization. My guess would be that there would be fewer risk combinations if your money was in a major bank savings account over the millenium transition, where the entire responsibility rests on a single organization. <<<<<<<<<<>>>>>
-- Dan Hunt (email@example.com), September 11, 1998.
Money market funds are not FDIC insured which brings me to the subject of bank account funds. 'FDIC' gives a false sense of security in a major catastrophe-in other words, get in line. I wouldn't put all my eggs in either basket (heck, I wouldn't put much of any in either). May I suggest you take those money market funds and purchase gold? Sound radical? Maybe, but maybe not. Do some reading and research. You might just be astounded. By the way, good luck to you and yours.
-- Goldi (firstname.lastname@example.org), September 11, 1998.
Goldi, I've been reading, researching and following gold bugs for at least 20 years. There has never been a time in that period when the gold bugs haven't had a bunch of good reasons why gold is about to start its upward move. There wer times when I believed them. I've still got the Krugerrand I bought for $700 just before it was going to go to $2000. (I think that was just before gasoline was going to go permanently to $5.00 a gallon). I have bought a little bit of gold on several other occasions over the last couple of decades and it was all bought at prices considerably higher than current. Ed Yardeni, who is a pretty good economist, projects that the any recession caused by Y2k will be deflationary - which would be bad for the price of gold. Robert Prechter is forecasting a drop in the price of gold to $100.00 an ounce. The last few years have frequently shown that economic crises don't raise the price of gold, they lower it, because many people are having to turn their gold into cash, which creates an excessive supply. Net result of all these experiences is that I have become very cautious of suggesting to people that they make major investments in gold. A modest percentage of your investment in gold is reasonable, but a significant investment is risky. <<<<<<<<<<>>>>>>>>>>....................
-- Dan Hunt (email@example.com), September 11, 1998.
"Ed Yardeni, who is a pretty good economist, projects that the any recession caused by Y2k will be deflationary - which would be bad for the price of gold. Robert Prechter is forecasting a drop in the price of gold to $100.00 an ounce. The last few years have frequently shown that economic crises don't raise the price of gold, they lower it, because many people are having to turn their gold into cash, which creates an excessive supply. Net result of all these experiences is that I have become very cautious of suggesting to people that they make major investments in gold. A modest percentage of your investment in gold is reasonable, but a significant investment is risky."
Your argument is solid...that is under normal circumstances. You have not experienced in your lifetime what is on the horizon for us. We are in the midst of a global economic meltdown.
What is occuring is nothing short of a world wide currency collapse. We are facing:
1. A very real possibility of being bumped as the reserve currency of the world, to be replaced by the EURO. 2. The world's 2nd largest economy (Japan) gasping and sputtering for it's life, it's major banking concerns on the verge of collapse under the weight of $trillions in bad loans. 3. The U.S.'s major trading partners, Canada and Mexico, are barely hanging in there, their currencies being devalued. 4. Russia is toast, and by the way, the citizens are currently hoarding U.S. Dollars (for the time being) and gold, not rubles. 5. China is on the verge of de-valuing the Yuan.
If you truly understand the ramifications of the above, you will also understand that here in the U.S., we are about to experience an economic disaster of epic proportions.
Yardeni is pro-EURO, because his employer is. He is not about to discuss the possibilty of the U.S. dollar being trashed as a result. Therefore, he is sticking to the narrow perspective of Y2K and it's ramifications, which if that were the only problem we faced, would in fact be deflationary.
Many economic "gurus" are forecasting a drop in gold. Martin Armstrong of Princeton Economics is one of them. Mr. Armstrong is strong on presenting facts and weak on successive theory. Did you read his commentary on Y2K this spring suggesting y2k will be a non-event? It practically made him out to be a buffoon. Of course, he is now back-pedaling on his gold forecast. Anyone forecasting gold to go to $100 and remaining there for any length of time is not considering a single critical factor. It would shut down gold mines or bankrupt them. The cost of production is estimated to be in the neighborhood of $250 oz. An industry-wide shut down would strangle the production of gold, and causing the futures markets to dry up, central banks to reign in selling and leasing, and what do you have? A perceived gold shortage. I'm sure I don't have to spell out what this would mean. I don't quite understand how economics gurus can conveniently forget this fact. Gold has to be kept at a certain range of value for a stable global economy.
In an economic crisis, gold is traded in for currency. That IS the point. If you have gold before your country's currency devalues, you retain your asset value, so as to trade it for a greater amount of your currency to purchase items. If you are caught with only currency during this time, your assets will be wiped out or greatly diminished. You are viewing gold from a perspective that does not apply. You have never gone through a U.S. currency disaster. Ask the citizens of countries that have undergone a massive devaluation how they feel about the gold they hold. In a time of economic crisis, it is a financial haven. Change your perspective and you will understand.
Finally...there IS NOT AN EXCESSIVE SUPPLY OF GOLD in the world. It is a rare and precious commodity. It is, however, currently being manipulated in price by the central banks, which gives the impression that there is a lack of demand or a "glut" because of it's low price. Nothing could be further from the truth. I have not had problems purchasing gold, but have heard from others who have. They have been told coins are on back order, and investors would have to wait and purchase them at current market rates upon arrival. My own broker has stated they are the busiest they have been in 18 years. Do a little checking of your own.
I do not advocate people who have a small net worth to turn it into precious metals. I do advocate turning excess cash into tangibles like food, fuel, etc. On the other hand, if you do have a net worth that exceeds your ability to spend it on tangibles, then by all means, spend some on precious metals to retain the value of your assets. It is what the rich elite are doing. Precious metals are the only financial haven in a time of global market and currency crisis of this proportion. Real estate is next in line, however, very far down the list, as it's relative value is not liquid and is subject to local economies. Anyone owning real estate better own it for it's intrinsic purpose and not market value, because they will be sorely disappointed.
My analysis and subsequent suggestions will only seem outlandish if I am wrong. Somehow, with all that is going bad with the world right now, I doubt that will be the case. However, the beauty of it all is that you have the right to do what you will and so do I. And I thank God for that every single day. Good wishes to you and yours.
-- Goldi (firstname.lastname@example.org), September 13, 1998.