Cash & Savings

Domestic and Foreign Currency

On the cash side of our investment triangle there are several options available. What percentage you feel comfortable setting aside depends entirely on your personal situation. One of your biggest concerns should be short-term safety and a financial strategy to protect yourself from a falling U.S. dollar on world exchanges. The commercial banking system in the U.S. is thinly capitalized and poses a structural risk to all funds on deposit. According to the Federal Reserve, the net loan-to-deposit ratio is currently 90%. But this figure does not include excessive liabilities and the Federal Deposit Insurance Corporation (FDIC) website states that its minimum reserve ratio can be as low as 1.35%. Put simply, bank operations are over-extended and depositors are given a false sense of security. The FDIC guarantees each depositor (not individual deposit) up to $250,000. In January 2011, the FDIC adopted Section 343 of the Dodd-Frank finance reform bill to afford unlimited coverage for non-interest bearing accounts until December 2012, but this promise is only as good as the so-called insurer. Most of the institutional funding for FDIC comes from member banks and the actual amount to cover losses is barely 50 cents for every $100. In other words, the entire system has a risk exposure greater than 99%.
 
The greatest risks to the banking system include low liquidity levels, leveraged derivatives, collateralized mortgage loans against distressed property values, and overly optimistic safety ratings. The FDIC refers to its sticker prominently displayed at every bank teller window as “a symbol of confidence,” and that is exactly what it is – a confidence game. As we all know, only the biggest banks in America get bailed out and the Fed always comes in as both the lender and buyer of last resort. It is important to know if your bank or financial institution is operating safely, and there are independent rating services that are available to the public. Veribanc, Inc. is the oldest rating service in America and covers 6,200 banks, savings and loans, and credit unions. You can call them at 1-800-44-BANKS or www.veribanc.com. IDC Financial Publishing, Inc. also offers quarterly reports on financial institutions and you can reach them at 1-262-367-7231 or www.idcfp.com. These rating services can help you determine if your financial institution is a good place for cash and savings accounts. Another excellent source for safety ratings is www.weissratings.com managed by Martin D. Weiss author of The Ultimate Safe Money Guide and The Ultimate Depression Survival Guide at 1-877-934-7778. For immediate access to bank ratings you can CLICK HERE and then click “search for a rating” and enter your bank or institution.
 
The Office of the Comptroller of the Currency requires all banks to report their holdings in high-risk derivatives, which is now approaching a notional value of almost $620 trillion worldwide! These leveraged financial instruments are heavily concentrated in the banking industry and most depositors are completely unaware of the enormous risk that this poses to the entire financial system in America. According to a recent OCC report more than a third of this exposure is in the U.S., or $227 trillion. The majority of this risky leverage is held by just six national banks: J.P. Morgan Chase ($77 trillion), Citigroup ($51 trillion), Bank of America ($50 trillion), Goldman Sachs ($42 trillion), HSBC ($4 trillion) and Wells Fargo ($3 trillion). Most banks and brokerage firms offer money market accounts, but these are comprised of repurchase agreements, discounted mortgage notes from Fannie Mae and Freddie Mac, commercial paper, banker’s acceptances, CDs, Treasury bills and so on. A safer bet might be a money market account funded in short-term (4, 13, 26 week) U.S. Treasury bills even though the yields are very low. The following is a list of some of these Treasury-only Money Market Funds to consider:
 

    American Century Cap Preservation Fund (CPFXX)
  1-800-345-2021 (www.americancentury.com)
 
  Dreyfus 100% U.S. Treasury Fund (DUSXX)
  1-888-782-6620 (www.dreyfus.com)
 
  Fidelity U.S. Treasury Money Market (FDLXX)
  1-800-343-3548 (www.fidelity.com)
 
  U.S. Treasury Securities Cash Fund (USTXX)
  1-800-873-8637 (www.usfunds.com)
 
  T. Rowe Price U.S. Treasury Money Fund (PRTXX)
  1-800-638-5660 (www.individual.troweprice.com)
 
  Schwab U.S. Treasury Money Fund (SWUXX)
  1-800-435-4000 (www.schwab.com)

You can compare these accounts which have check writing privileges, low minimums, and are fully backed by the U.S. government. You can also buy short-term securities directly from the U.S. Treasury by going to www.treasurydirect.gov and open an account for as little as $1,000. Instead of receiving actual T-bills you get a bookkeeping entry that says you own T-bills. I realize that these accounts still represent government debt instruments, but they avoid risks associated with regular money market funds and can fit into a short-term strategy for safety and liquidity.
 

One of the best ways to avoid the inherent risk of holding U.S. dollars is to open a savings or time deposit account denominated in a foreign currency. Perhaps the most innovative bank in the U.S. that offers the convenience of foreign currency accounts is EverBank Financial Corp. headquartered in Jacksonville, Florida. For a minimum of $2,500 you can open a WorldCurrency Access Deposit Account in a single currency like the Canadian dollar or Swiss franc. This is strictly a savings account that pays interest on amounts over $10,000, there are no monthly fees, and you get a monthly statement by mail with online access. For $10,000 you can also open a WorldCurrency CD for 3 to 12 months which provides access to emerging markets. Short-term CDs have marginal yields but account holders can realize capital gains as the dollar depreciates. For $20,000 you can choose among the Economic/Geographic/Commodity-themed Basket CDs that offer a wide variety of global strategies. To learn more about EverBank you can call 1-888-882-3837 or go online at www.everbank.com. Another way to hold foreign currency is to purchase American Express Travelers Checks denominated in a foreign currency or contact Travelex for foreign currency at 1-877-414-6359 (www.us.travelex.com)

Diversification

  * Diversification 
  * Metals and Tangibles
  * Cash and Savings
  * Growth and Income