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Ah, c'mon man!@stillers, you seem to have quite an anger problem. Bottom line is I never once said a CD ladder wasn't a good idea. I tried to covey that bond funds also may be turning the corner and starting to give decent returns - for anyone who chooses that investment path. Even at your dismay and scorn.
One solution to this crisis would be that, if the bonds magically went back to being worth 100 cents on the dollar, the banks would mostly be fine again. That seems improbable, though I guess one interesting mechanism would be if the banking crisis caused enough of a recession to drive long-term interest rates back to where they were in 2020. Then the bonds would be fine, though probably the banks would have credit losses.• 1) Banks bought a lot of Treasury bonds and other US government-backed securities when interest rates were low, paying roughly 100 cents on the dollar for them.
• 2) Interest rates went up a lot, driving the prices of those bonds down to, say, 85 cents on the dollar.
• 3) Banks had big losses on those bonds, eating through a lot of their capital.
• 4) People noticed, stocks went down, deposits fled, some banks failed and others have looked shaky.
The FDIC has spent billions of dollars on its bank rescues — which is also a transfer of losses from banks to the government to make the banking system more solvent — but it is getting the money back by charging a special assessment to be paid by about 113 big banks. If the banks pay the assessment with Treasuries that are worth 90 cents on the dollar, but that count for 100 cents on the dollar, then they get a little discount on the assessment and get to move unpleasant assets off their balance sheets.Banks have spent the past week or so testing what would be a clever gambit: Paying billions of dollars they collectively owe to replenish a federal deposit insurance fund using Treasurys instead of cash.
The idea—floated to regulators and lawmakers by PNC Financial Services Group and supported by others—could allow banks to take securities that are currently worth, say, 90 cents on the dollar, and give them to the Federal Deposit Insurance Corp. at full price. That would effectively shift losses clogging the banks’ balance sheets to the FDIC, according to people familiar with the proposal. ...
Proponents say nothing in the law says FDIC fees have to be paid in cash, so the agency could change its rules. They say the move, if greenlighted by the FDIC, would help the banking system address the way rising rates over the past year have saddled lenders with billions in losses on their portfolios of bonds. Those losses helped sink Silicon Valley Bank in March, sparking turmoil across the banking sector. …
Supporters say the government would hold the securities until maturity, allowing them to recover principal and interest on the debt. The government would suffer no losses, they say.
As I stated, I used RPHIX as a "cash alternative....in a market where income instruments were unattractive". RPHIX is a Bond OEF, with no protections for my cash, and any projections about it performing nice and smoothly for the next 6 months, is a guess and a gamble. My preference for "cash alternative" investments, with some protections, are CDs paying over 5% and MMs paying close to 5%, both of which are much more protected and secure than a bond oef, that may or may not preserve my principal as a "cash alternative".During the last 6 months, RPHIX gained $2.84%. If it continues, this will be 5.7% per year with minimal risk. If not a secret, can you tell us about better opportunities that you see now? Or do you have in mind what may happen with other funds when the rates go down?
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