Will wealth held in bonds seek gold as a safe haven to diversify?
*Bloomberg, by Michael McDonald, February 20, 2009:
''Auction-Rate Bonds Claiming Victims Year After Market Collapse
Mike Stelzer expected to retire after selling his cattle ranch outside
Bakersfield, California. Instead, the 73-year-old is raising Holsteins
on leased land, unable to quit because a chunk of his $2 million nest
egg is stuck in auction-rate securities paying next to nothing.
‘I have lost all faith in bankers and Wall Street,’ said Stelzer, who
invested the proceeds from the sale of his ranch in the securities
through San Francisco-based Wells Fargo & Co.
A year after collapsing, the one-time $330 billion market for debt with
rates typically set every 7, 28 or 35 days is still claiming victims.
Investors are stuck with as much as $176 billion of the securities even
after regulators forced banks to buy back more than $50 billion of
auction-rate debt that was marketed as safe, cash-like instruments.
The market’s meltdown, the result of the seizure in credit markets,
initially left investors with bonds they couldn’t sell, though the
securities paid interest at rates as high as 20 percent. Now, rates on
securities auctioned every seven days pay an average 1.36 percent,
according to an index from the Securities Industry and Financial
Markets Association, after central banks slashed borrowing costs.''
Investors are stuck because interest on auction-rate securities is
lower than what issuers would have to pay on new borrowings, giving
them little incentive to refinance.
Bank Settlements
Other options for investors are hoping that an auction succeeds or
selling their securities at a loss on the secondary market. Of the 825
auctions reported last week, 81 percent failed, according to the
Municipal Securities Rulemaking Board’s Electronic Municipal Market
Access web site.
Stelzer is earning an annual interest rate of less than 1 percent on
$675,000 in so-called auction-rate preferred securities issued by New
York-based money manager BlackRock Inc. He sold $675,000 of his
holdings in October at a loss of $103,000 and got all his money back on
$650,000 of debt that was refinanced by the borrower.”
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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