Safe Money seeks safety through Treasuries

"Derivatives — the 'global Vesuvius of debts and bets' that we have been warning about since 2006 is beginning to erupt," says Martin Weiss.

The editor of The Safe Money Report explain, "The time is now to build cash and the best place to put it is in United States Treasury bills or equivalent." Here, he looks at the benefits of Treasuries and the various ways that investors can add them to their portfolios.

"We now have overwhelming evidence of a severe recession. And we have a solid confirmation in the stock market itself.  But we also forecast that the Fed would fight back, and do so aggressively, fomenting an inflationary recession.

"They’re pumping in massive amounts of money, trying to calm markets and seeking to avert a recession. But it’s too little, too late for the economy. And it’s too much, too soon for the already-shaky dollar. Result: Gold has surged along with other commodities.

"And consumer price inflation, long a side-show on the American scene, is now surging back. Our urgent appeal: If youhaven’t done so already based on our earlier issues, the time is now to shift from complacency to protective action ... from bull-market plays to income opportunities ... from risk to safety.

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"The time is now to build cash and the best place to put it is in United States Treasury bills or equivalent, thanks to their multiple advantages:

"Advantage #1. Guaranteed. The principal and interest is guaranteed, without limit, by the U.S. Treasury Department, and it is widely agreed that this guarantee is superior to the guarantee of other government agencies.

"Indeed, even in the worst of times — during the Civil War, the Great Depression, banking panics or battles over the federal budget that have temporarily frozen government finances — that guarantee has always held up.

"Advantage #2. No downgrades. They’re never subject to downgrades. U.S. Treasury bills have  always merited the highest credit rating of any investment in the world. Even when our government acts irresponsibly, that does not change.

"Advantage #3. Liquidity. No matter how you buy them, you can sell them in one of the largest and most actively traded markets in the world.

"Advantage #4. Yield. Although the Fed rate cuts have naturally cut it down, the yield on U.S. Treasury
bills is still in line with money markets, which may not provide all of these advantages.

(Important: When comparing T-bills to CDs or other money markets, do not use the 'Treasury-bill rate.' Instead compare the Treasury-bill 'yield,' which is invariably higher than the rate.)

"Advantage #5. Exempt from local and state taxes. Unlike CDs or most money funds, your interest is exempt from local income taxes. The disadvantage: U.S. Treasuries are naturally denominated in U.S. dollars, and those dollars are losing value.

"But to avoid that risk, the solution is not to run away from U.S. Treasuries or park all your cash overseas. We feel that would be both imprudent and inconvenient.

"You can select your preferred method of buying Treasury bills. One way is through TreasuryDirect. You can establish an online account with your Social Security number and buy the Treasuries electronically. Visit http://www.treasurydirect.gov or call 800-722-2678. We recommend you focus on the 3-month (13-week) bills.

"You can also invest via a Treasury-only money fund. This is the most convenient method, giving you direct access to your funds via check-writing or wire transfers. Indeed, with a Treasury-only money fund, you can often handle most of your checking and savings in a single account.

"To lock in some of your yield, we suggest that you allocate a modest portion to 1 to  3 year maturities. The most convenient vehicle is the iShares Lehman 1-3 Year Treasury Bond Fund (ASE: SHY)."