This is no time for risk-taking.
I’ve been warning you for months about deteriorating credit conditions. If you haven’t done so yet, I urge you once again to park your cash balances in government-only securities or mutual funds that are strictly designated “government” or “Treasury” money-market funds.
The entire world is now running hard to buy government bonds, both Treasuries and foreign government bonds like German “bunds.” Yields continue to decline.
The ongoing crash in credit markets confirms this strategy. You can tell because everything else is dropping, even investment-grade corporate bonds and municipal bonds.
Once again, buy government debt now.
If you’re an American, this means short-term Treasury bonds and 90-day T-bills, which you can buy through a broker.
Equally, a government designated Treasury money-market fund, like Vanguard Admiral Treasury Fund (VUSXX) can save your portfolio. This fund manager charges just 0.10% per annum (US$50,000 minimum).
You can also look at the Vanguard Treasury Money Market Fund (VMPXX), charging 0.24% per annum and requiring a US$3,000 minimum investment. Both funds are secure, won’t break the buck and will protect your assets. I’d scramble to place my liquidity proceeds in Vanguard before most U.S. banks, except J.P. Morgan.
Government debt is now highly in demand. Last week, Treasury bills reached their lowest yields since the Japanese bombed Pearl Harbor in December 1941 at just 0.04%. These are Depression-era yields at the moment as investors dump everything and flock to safety. During the Great Depression benchmark T-bill yields actually turned negative!
The odds of that happening again are not only likely but probable as credit conditions are now literally frozen. The global credit system is effectively at a standstill. Lenders are hoarding cash and denying liquidity to other banks and institutions.
At some point I expect all of the Fed’s efforts, including help from other central banks, to finally put a lid on this crisis. Global central banks are already pumping in liquidity at an astonishing rate.
Until central banks win the battle against deflation, make sure your cash balances or portfolio liquidity is protected. Most banks and money-market mutual funds remain a high-risk place to park your cash. Make sure you have government securities sitting in your portfolio.
