Time to throw in the towel on WaMu?

The beleaguered bank just can't catch a break. Today Standard & Poor's Rating Services downgraded WaMu's counterparty credit rating to "CCC" from "BB-" further miring it in junk status. The reasoning being a split of the bank on any sale, as vultures are keen on snatching the strong deposit base while staying as far away as possible from the toxic mortgage assets.

As seen in the chart, WaMu's stock price (NYSE: WM) has fallen along with the confidence in the bank, dropping another $0.94 to a 52-week low of $2.26. Uncoincentally, this battering has led them to increase interest rates on online savings to 4.00% and on 12 month CDs to 5.00% in attempts to shore up capital.



While these are GREAT rates given current market conditions (who wouldn't want guaranteed returns in this financial crisis!) how safe is your money? Sure its FDIC insured on deposits up to $100,000 but with all these bailouts and government takeovers, but how long will the FDIC's printing press be available until it breaks down? Here's a great article on reasons to stay with WaMu from MyMoneyBlog, but seeing that nearly 60% of my cash is sitting with WaMu, I still am pretty uneasy with leaving my money in there.

I have an online savings account and an 8-Month CD (which I opened for 4.25% APY) and the trigger is itchin for me to withdraw the money. IndyMac is the closest example to what would happen should WaMu fail and after reading some stories from those customers (via SlickDeals) seems like it took 4-5 weeks for money to be returned. So seeing that a bailout of WaMu would be greater than IndyMac, I can't imagine how long my money would be locked away NOT earning interest.

So do I forgo the attractive interest rates and settle for a lower rate but more security? I'm leaning towards a move back to EmigrantDirect at 3.00%. So far I'm undecided, but I'll wait for this month's interest to be deposited and then I'll make a decision.

Happy rate hunting!

One Love,

Look

Interest Rate Roundup

Rates have come up a tad bit in the last month. Here's the current roundup:

WaMu Online Savings: 3.75%

WaMu 8 month CD: 4.25%

WaMu 12 month CD: 4.50%

Emigrant Direct: 3.00%

ING Direct 3.00%

HSBC Direct: 3.50%

E-Loan Savings: 3.01%

E-Loan 6 month CD: 4.06%

So my in my rate chasing, I moved my matured E-Loan CD into WaMu and dumped it into an 8 month CD. I've been socking most of my savings into the online savings account as well. Due to the turbulence in the market I'm reluctant to move everything into WaMu, so I still maintain my other account at Emigrant Direct. While these rates are better than what we've been seeing, the forecast looks bleak. About a week or two after I opened the 8 month CD, WaMu was offering a 12 month, 5.00% CD which I would have definitely jumped on. I jumped the gun too early, then waited to late and now they've dropped the 12 month rate to 4.50%. So unfortunately looks like there won't be another uptick in savings rates anytime soon :(

One Love,

Look

Financial Crisis: The Broken American Dream

It's been quite some time since my last post and much has transpired. The housing market in the U.S. has collapsed with Countrywide Bank being bought by Bank of America, BearStearns the fifth-largest investment bank collapsed and was absorbed by J.P. Morgan, Freddie Mac & Fannie Mae have tumbled as a result of the housing debacle forcing government guarantees, IndyMac was taken over by the FDIC, Lehman Brothers is facing the way of BearStearns, S&L's like WaMu and Wachovia have had their balance sheets come into question. So where does this leave little investors like us?

They say don't panic. Easier said than done. Since the turmoil began last August, my portfolio has seen double-digit percentage declines and the bleeding has still not stopped. Following the "buy low, sell high" adage, I've bolstered these falling positions by purchasing additional shares. While I'm getting these shares at a "discount" this strategy will only bear fruit if a rebound occurs. So since I'm young I'm holding my breathe and blindly sticking to my guns. That's not to say I'm totally exposed to the market. I still have a considerable cash balance and just recently invested in a bond fund to diversify away from my stock exposure. Jumping ship and selling shares seems like the wrong thing to do. Interest rates are at all time lows so there leaves growth possibilities very low. I guess the only thing it would do is to stop the losses. This may be good for someone at/near retirement, but my time horizon is too long to have my money just sit and do nothing. No risk, no reward right?

So what happens if a rebound doesn't occur and we enter a prolonged bear market recession? Well the buy & hold strategies, the dollar cost-averaging and the long term views will end up destroying my retirement plan. No social security to count on, a fledgling 401k. What's a boy to do? Time will tell. I'll suck it up until I can take it no longer and decide what my next plan of action is.

So for those rate chasers, a mini-update. IndyMac failed so I wouldn't recommend pouring cash there (seeing that it might be a process to get it back), but here's the latest rates:

• HSBC - 3.5%
• WaMu - 3.3%
• ING Direct - 3.0%
• EmigrantDirect - 2.75%
• Citi - 2.65%

Good luck investors!

One Love,
Look

Interest Rate Freefall

Long story short. Fed cuts overnight interest rates from 5.25% to 4.75%. Result: Interest rates fall off a cliff.

Glad I locked in a 5.36% 12 month CD at E-loan before the carnage, but kicking myself for not locking in for 18 months. Unfortunately 2 CDs expired after the freefall and blah. My Wamu CD i rolled into a 4month CD @ 4.65% APY (They were offering ~2.7% for all other maturities!). My Emigrant Direct CD I transferred into my savings account earning 4.75%.

So there's little options out there as all banks seemed to have followed suit. There are higher rates at Countrywide and IndyMac, but their exposure to subprime worries me. Although they are FDIC insured, I don't feel like the small bump in rate would be worth the headache should they fail. So for now I'm going to sit tight and see how the rates play out in the coming weeks.

In other portfolio news, I'm roughly 50% cash which is way to conservative for my age bracket. Sadly, this is probably the lowest cash ratio I think I've ever had for my porfolio showing my uber conservativeness. I've been ramping down this cash number, however. I set up an auto-investment with Vanguard into my VTRIX mutual fund. I'd invest more, but with the market so hot right now and everything trading at all time highs, I'm hesitant to do more.

Well I guess we'll see what happens in the coming weeks.

One Love,
Look

Interest Rate Roundup

I opened a couple of CDs at WaMu while I was in college and have since been rolling them over. My returns haven't been too great, with some of my earlier CDs locked in at rates around 3%, but recently trending around 5%. This weekend one of my CDs expired so I was forced with the decision of rolling it over again or pulling the money out. Interest rates at online banks have trended downwards over the past few months, so I decided to stay locked in another CD for 8 months with a rate of 5.10% APY.

My old faithful in online savings, Emigrant has served me well, but I think I held my money in these accounts for too long. Currently I have 2 CDs with 6 month maturities locked in at 5.20% APY and my regular savings account at 5.05% APY. In the past couple of days, the CD rate has fallen to 5.10% and I'm fearing a draw down on the regular savings account will soon follow.

That leaves me with E-Loan. I was late to jump on the boat when they were offering 5.50% APY on their online savings account out of sheer laziness on my part in my unwillingness to open yet another online account and shuffling money from Emigrant to my Citi Checking to E-Loan. In hindsight, I should've gone through with all the hassle for the better rate. Currently, they're offering 5.25% APY for their online savings account which is higher than any interest rate I currently have. Suffice it to say, my money is locked in various things and I'd have to do some money management/stop spending my paychecks to roll the $5,000 minimum into an E-Loan account. Boo. I guess better late than never, however, so in the coming weeks I shall do some portfolio shuffling and open yet another account. I'll report back later on my progress or lack thereof.

One Love,
Look