Sunday, December 07, 2008

Rotten Fish Smell With T-Bills

My wife yesterday pointed out to me that our last T-bill renewal for $10,000 only paid $7.50 for three months. I told her not to renew the damn thing, we can convert it to cash and put it in a safety deposit box. No sense in letting the government borrow it for one of their ill begotten schemes. Here is last weeks auction results.
If you want to talk about safe assets, is cash one of them? I have to question even my own thinking. Why give anyone a loan in these troubled times unless the borrower wants to pay a real return. Risk money should be at about 12 to 18 percent. Just look at what your credit card wants for financing, 18 to 30 percent interest annually.

Here is what the Fed was paying last year and it was reasonable:
There is a conundrum here, why loan money at such low rates? I have no answer except the the words "Bernanke and Paulson." We are not renewing our T-Bills, the government can "Go Fish!"

Copyright 2008 All rights reserved


Tyrone said...

You mentioned taking the cash and shoving it in a safety deposit box. What do you think about holding cash in other currencies? Canadian dollar, for example. For diversification, I thought it might not be a bad idea--no worse than holding all US dollars, anyway.

Jim in San Marcos said...

Hi Trone

Other currencies could be a fine call. My only suggestion was to diversify.

My point was if it is in the mattress, the government can't loan it out to others.

Anonymous said...


Any thoughts on "TBT"? I dipped my toe in the water on Friday.

Still trying to figure out what to do with cash.

(UltraShort Lehman 20+ Year Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.)

I'm Not POTUS said...

I've had TBT for awhile now and I have no clue of the when it will happen I only know that it will.

So trade accordingly. I just assume that I have "lost" that money because the market can stay irrational longer than you can stay solvent.

Superbear said...

Shorting Treasuries could be a bit of early trade.

There is still huge demand for these (including Long-Term) and any more sell-off(s) along the way, and large funds could want a fair amount of their holdings permanently parked in Treasuries.

Earlier I was thinking TLT could top between $113-$119, but won't be surprised if it runs higher than that.

Jim in San Marcos said...

Hi Dan Mac and Potus

I am not familiar with TBT. I looked at it and it doesn't look like there is a big payout on it. S & P 500, out of the money, put options have a very high return rate on big drops in the market. The trouble is right now, they are a little overpriced.

The thing to realize is that if I was to mention an item that I am buying, my future costs increase when you bid for them also. Some are very thinly traded like 20 to 80 options per day. So more people bidding makes them more expensive. Mum is the word.

Jim in San Marcos said...

Hi Shankar

You have me lost, shorting Treasuries???

Right now I am trying to buy calls on the TNX 10 year bonds on the assumption that interest rates will have to rise (sooner or later). I see 25% interest rates one year down the pike. These Hemorrhoids in Congress haven't got a clue to what is really going on.

Anonymous said...


I think we have our wires crossed perhaps? When you say that you are trying to buy calls on the TNX 10, I assume that your are playing on the 'yield' (vs. price side of the fence) and that we both have the same goals. I too see higher rates and have started to play via the TBT (moves inversely 2x with 20 yr Lehman Bond Index; or essentially 2x inverse the TLT?).

It appears that some of these actually pay a div once a year. I assume that it is a share of the proceeds on collateral posted to do the futures trades? If I am correct, doesn't that also mean that the yield/payout could potentially increase over time as the trade itself begins to work (ironically)? Of course the yield would likely be correlated to the short maturities/T-Bills while the "action" on the ETF begins when the long end prices sag.

I agree with you guys that it may be "early", but it seems to me to be more of a "dead-money" OR "it works" scenario in terms of risk/reward. If I am correct that it collects a div, that could help to wash with the Expense Ratio while you wait?

Tell me the error in my logic. You guys have more experience in this than I.

Jim in San Marcos said...

Hi Dan Mac

With out of the money Calls and Puts, you have the chance of a 800 to 1 return on your dollar. So $100 in options could return $80,000. I don't see that payout in the Lehman stuff but at the same time, that investment is not an all or nothing event.

Anonymous said...

Jim wrote: "The thing to realize is that if I was to mention an item that I am buying, my future costs increase when you bid for them also. Some are very thinly traded like 20 to 80 options per day. So more people bidding makes them more expensive. Mum is the word."

Ahhh - I didn't realize that you were actually refering to what you are pursuing. Thinly traded - got it; my bad. Not to worry - not an options guy! Looking to put a larger % of cash to work without going for the "home run".

Thanks as always for your posts/responses.


I'm Not POTUS said...

I lack the skills, time and bankroll to do things the proper way. But I enjoy watching you guys play these suckers.

Looking at SRS now that commercial is starting to join the residential slide.

Jim in San Marcos said...

Potus and Dan

SRS and TBT, we seem to be talking Lehman Brothers here, anybody got a good solid link on one what they are and the possible payout?

From my vantage point they look like second derivatives of a bankrupt company.

Anonymous said...

It's a ProShares product that uses as it's benchmark the Lehman 20+ Year Treasury Index.

I'm confused as to what these have to do with Lehman other than using the Lehman "Index" as a benchmark?? What am I missing?

Superbear said...


Shorting Long-Term Treasuries using TBT.

I was saying that could be an early trade now. Long Bond can still go higher, though I think it is looking tired.

Anonymous said...


This post has nothing to do with your T-Bills stinking, however it sure smells like rotten fish also.

I read this today... (

Apparently some of the S&P indices are being replaced with the "big-boys" having market values greater than $23b.

This seems like an easy way to mask a flailing market... just simply replace the big-losers with not-so-big-losers having lower volatility.

What do you think?


Jim in San Marcos said...

Hi Shankar

I'm trying to buy options on the TNX 10 year Treasury's should give a big bang for the buck---we could both luck out

Take care

Jim in San Marcos said...

Hi Tom

I'm not sure. Common sense suggests that the down side could be higher on a higher capitalized stock.

Could prove interesting, thank you for pointing it out