Rolling over my 28-day T-bills from August

Since I purchased my last batch of 28-day T-bills over three weeks ago, it's almost time for them to mature and to roll the proceeds over and buy a new batch on the next weekly T-bill auction on Tuesday using the TreasuryDirect online system. All of this is happening automatically, but I am interested in what interest rate I'll get since it depends of the demand at the auction. I'll know on Tuesday afternoon when the T-bill auction results are published.

My current T-bills were issued on Thursday, August 3, 2006 and mature this Thursday, August 31, 2006. Their investment rate (uncompounded annual yield) was 5.21%. The interest rates on the 28-day T-bills for the three weekly auctions since then were 5.23%, 5.17%, and 5.17%.

If demand is higher, I'll get a lower rate. If demand is lower, I'll get a higher rate.

The proceeds from my maturing T-bills will be credited to my bank checking account sometime on Thursday and the debit for the new purchase will hit shortly thereafter. At least that's what happened last time. I have enough cash in my bank checking account to cover any skew in the credit and debit order. The net effect will be that the accrued interest will be deposited in my bank checking account.

-- Jack Krupansky

Major expense reserves in my net worth

As my financial situation incrementally improves, I am tweaking my calculation of my net worth. My latest change is to keep a separate spreadsheet of all of the major expenses I expect to make over the next six months and to subtract these "reserves" from my calculated networth.

The only major expenses I anticipate for the rest of the year are for travel, the biggest being a trip back to Washington, D.C. sometime in the fall. I'm also hoping to hop down to San Francisco for a long weekend at some point. And, I'm expecting that I will take one "holiday" trip near the end of the year.

Buying a new computer is too far down the road to show up in my major expense budget yet, although I do have a tenative list for next year.

I'm still planning to hit breakeven by the end of the year, where my liquid assets will finally balance my debt (back taxes, outstanding credit card balance, and major expense reserves). Presently, by liquid asset to debt ratio (with reserves taken out) is at 59%, a little better than halfway to breakeven.

I'm still debating with myself when to pay off my New York State back income taxes, but I think I want to get my cash reserves a little bit higher. Maybe next month, and maybe when I have a better handle on my likely travel expenses in the Fall. Maybe the end of October is a better goal to shoot for. Or, maybe I'll just time it to correspond with hitting breakeven.

For now, I am still counting pennies and keeping my expenses under very tight control. I finally got a haircut last weekend, two months later than usual. I eat out at restaurants only twice a week and get some takeout from Whole Foods or wherever the other nights.

I think I decided to let my subscription to Forbes magazine lapse. I occasional get a little value (emphasis on little) out of reading that magazine, but not enough to make it worth spending my time on. This means I have no magazine subscriptions. Like I said, I'm saving pennies.

-- Jack Krupansky

The Katrina memory effect

As we rapidly approach the anniversary of Hurricane Katrina's devastating passage through New Orleans and the surrounding Gulf Coast region, the memory of that destruction could put a little bit of a damper on market sentiment. And wth Hurricane Ernesto now bearing down on the Gulf at the same time, it would be no surprise to see a spike up in oil and energy futures and a decline in overall market sentiment. On the other hand, the approach of the anniversary has haunted markets for an entire year and Ernesto is currently tracking more towards Florida than the oil production areas, so we could actually see more of a relief rally in the markets and a pullback in energy commodities as people grow more comfortable with a less eventful storm season.

-- Jack Krupansky

Fed still likely to stay the course at 5.25% for the rest of the year and next

As of Friday, Fed funds futures firmed up their prediction that the Fed will remain paused at their September 20, 2006 meeting. October Fed funds futures predict a rate of 5.2800%, or about a 12% chance of a hike and an 88% chance of no hike. Sure, that could change at a moment's notice, but for now is a rather solid, slam-dunk, no-brainer for a continued pause in September.

Further out, Fed funds futures predict a rate of 5.3150% in January, suggesting barely a 1 in 4 chance of a hike to 5.50% through January. Note that futures less than 45 days out tend to have some chance of accuracy, but further out futures are susceptible to very wild swings and changes in market sentiment and frequently reflect insurance hedges rather than outight bets.

People are starting to chatter more seriously about a cut in interest rates sometime in 2007, with futures suggesting a 10% chance of a cut in February and a 68% chance of a cut through July, but these may be more of a hedge rather than outright bets.

My estimates are very rough calculations based on Fed funds futures prices. More accurate modeling of fed funds rate predictions based on options on federal funds futures can be found on the the Cleveland Federal Reserve Bank's web page for Fed Funds Rate Predictions. Based on their calculations from Thursday, there is a 84% probability of 5.25% after the September meeting, and a 74% probability of a 5.25% rate after the October meeting. I'm sure that their sophisticated modeling and math is far more rigorous than mine, but the final number is still in the same ballpark and still has the same overall message: no hike at either the September or October FOMC meetings.

My unchanged view is that although the Fed has a strong preference for inflation in the 1% to 2% range, even the 3% range is somewhat tolerable, at least for a a relatively short span of months or maybe even a year. Even with the most recent spike, oil prices still haven't advanced significantly beyond their peak for the year to date. Ditto for gasoline. Speculators are still bullish on commodities, but overall, commodities prices have lost much of their upward momentum.

Make no mistake, the Fed would dearly love to push inflation down below 3% or even 2.5%, but by the same token they will not go very far out on the limb to do so.

It may take a number of months or even an entire year for inflation to pull comfortably back into even the low 2% to 3% range, but the Fed has in fact done all of the heavy lifting and now has the luxury of sitting back and watching the fruits of its labors gradually take root.

General points:

• The economy has slowed enough that additional hikes are not clearly needed.
• The economy is still strong enough that another hike won't kill it or send it "spiraling" into recession.
• The economy is also strong enough that some further hikes could be needed a few more months down the road.
• The economy has a lot more underlying strength than a lot of pundits give it credit for.
• The housing "boom" has certainly waned, but the housing sector is not going to lead to a general recession.

Although there are so many factors at work, it may be that we can simply use the price of crude oil as a "crude" surrogate for both the state of the economy and inflationary pressure. I would suggest that if crude oil pops up above $80 and stays there going into the September 20 FOMC meeting, a hike will be a done deal. On the other hand, if crude oil retreats closer to $70, a continued pause will be a no-brainer. Crude oil at $76 to $78 will suggest a higher probability of a rate hike. Crude at $72 to $74 would suggest a higher probability of staying paused. The $74 to $76 range is outright "coin flip" territory. Certainly the decision process is nowhere near that simple, but I suspect that my simplistic model won't be too far from being accurate. There are nits such as whether to use "spot" price or front-month futures, or to use the short-term peak futures price, but "headline" or front-month futures (September) are probably close enough.

Where does that leave us today? On Friday, the NYMEX crude oil futures contract for September delivery closed at $72.51 (versus $72.10 a week ago), which is well within the "no-brainer pause" range. The peak short-term futures contract, September 2007 and October 2007, closed at $76.41 (versus $76.00 last week). Absent significant change over the coming weeks, crude oil suggests that the Fed will stand pat with a pause at 5.25%. As long as front-month crude stays below $76, the Fed can remain paused without too much criticism, but at $76 or higher, the Fed would be feeling the heat and opt to gain more "inflating-fighting" credibility with a hike to 5.50%.

The hurricane season has been very mild this year to date, but I said that last year at this time and then Katrina and Wilma came along. You can be sure that traders and speculators and planners will be hyper-alert for storm-related news, so we might not see crude oil futures pull back significantly until we get well into October. We could also see one or more "technical" pullbacks based of technical analysis by traders and speculators, but they tend to be following by matching rallies, until we finally see an economically-based decline.

Although much has been made about a presumed 1% to 2% "inflation target" for the Fed, the reality is that 2% to 3% is about "as good as it gets" for the kind of economy and financial system we currently have in America. Sub-2% inflation does in fact occur on occasion, but only in a fleeting manner. Bernanke also made clear during his confirmation hearings that he was inclined to stick with the status quo for now and move towards specific inflation targets only over time. So, don't worry about such a target this year and probably even next year.

My impression is that once the Fed pauses for several meetinsg and considers monetary policy to be "stable", it will be prepared to "hold its fire" if monetary policy is roughly "neutral" (i.e., in the 4.5% to 5.75% range) and one-year inflation doesn't pop too far above 3%. That begs the question of which measure of inflation to use, but in truth it doesn't matter a whole lot. If you want to use headline inflation rather than core inflation, then you simply need to expand the range moderately (say, from 3% to 4.5%) to reflect the nature of volatility due to short-term pricing spikes (e.g., gasoline) that occur no matter what the state of the economy.

Before the August FOMC meeting it was not clear whether Bernanke would lean more heavily in the hawkish inflation-fighting direction or in the more dovish growth-promotion direction. The pause at the August FOMC meeting made it abundantly clear that despite being serious about fighting inflation, he prefers to protect growth. Put another way, he probably despises inflation a little less than he despises deflation.

Another factor that cannot be overlooked is that this is an election year, and there is a tendency (but not a hard rule) that the Fed should "lighten up" going into a politically-charged election season and avoid appearing to be helping one party or the other. I personally don't think that this was a major factor in the Fed's thinking or will be in the next two months, but this factor is out there.

My view is that the Fed will keep their fed funds target rate paused at 5.25% for at least the rest of the year, and probably for the entire coming year.

-- Jack Krupansky

PayPal money market yield rises to 5.04%

Here are some recent money market mutual fund yields:

• iMoneyNet average taxable money market fund 7-day yield rose from 4.71% to 4.72%
• PayPal money market fund 7-day yield rose from 5.01% to 5.04%
• ShareBuilder money market fund (BDMXX) 7-day yield fell from 4.51% to 4.49%
• Fidelity Money Market Fund (SPRXX) 7-day yield at 5.02%
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield was unchanged at 4.98%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield rose from 4.46% to 4.47%
• Fidelity Federal Municipal Money Market Fund (FTEXX) 7-day yield at 3.28% or tax equivalent yield of 5.05% for the 35% marginal tax bracket and 4.56% for the 28% marginal tax bracket
• 28-day (1-month) T-bill investment rate was unchanged at 5.17%
• 91-day (3-month) T-bill investment rate was unchanged at 5.11%
• 182-day (6-month) T-bill investment rate fell from 5.23% to 5.17%

I need to look into what is going on at Fidelity. I hadn't noticed SPRXX before and they used to talk about FCASH, which I no longer see. Maybe they've seen the light and done the right thing, or maybe they've simply confused matters even worse. I'll have to investigate further how they are handling "core" cash these days for a taxable account (which I do not have, yet). Next year, when I have an extra $2,500 in free cash I will consider using a Fidelity account for payroll direct deposit and checks and bills. Since I pay most of my bills (including back taxes) through direct debit from my bank account, I'll have to check into whether Fidelity can handle that. They do have "BillPay", but that's different and not what I need.

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield. There is no minimum for a PayPal account, no fee for a basic account, and it can be linked to your bank checking acccount for easy access. Unfortunately, there are limits to how much money you can "receive" in your PayPal money market account each month. For example, I would not be able to move all of the cash in my Siebert taxable account to PayPal in one month. Update: I'm not sure if this is really true since my limit remained unchanged even after I made a deposit for the full limit amount. I'll have to investigate further.

Right now, 28-day T-bills feel more attractive for cash that you won't need for a month, but there is no guarantee that the interest rate on the next weekly Treasury T-bill auction will be as attractive. The other catch on the T-bills (besides being locked up for 28 days) is that the unit of investment is $1,000, so you have to find some other place to put any fraction of $1,000, including any interest you might accrue.

As always, please note that cash placed in money market mutual funds is subject the the disclaimer that:

An investment in the Fund is not insured or guaranteed by the Federal Insurance Deposit Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

In practice, that is not a problem at all, but it does incline me to spread my money arround a bit.

T-bills and the cash in your bank checking account or bank CD are of course "protected", either by "the full faith and credit of the U.S. Treasury" or the FDIC.

-- Jack Krupansky

Fed still likely to remain paused at 5.25% for the rest of the year and next

As of Friday, Fed funds futures were predicting that the Fed will remain paused at their September20, 2006 meeting. October Fed funds futures predict a rate of 5.2850%, or about a 14% chance of a hike and an 86% chance of no hike.

Further out, Fed funds futures predict a rate of 5.330% in December, suggesting less than a 1 in 3 chance of a hike to 5.50% in December. Even in January futures predict a rate of 5.340%, or only a 36% chance of a hike. Note that futures less than 45 days out tend to have some chance of accuracy, but further out futures are susceptible to very wild swings and changes in market sentiment and frequently reflect insurance hedges rather than outight bets.

My estimates are very rough calculations based on Fed funds futures prices. More accurate modeling of fed funds rate predictions based on options on federal funds futures can be found on the the Cleveland Federal Reserve Bank's web page for Fed Funds Rate Predictions. Based on their calculations from Thursday, there is a 84% probability of 5.25% after the September meeting, and a 72% probability of a 5.25% rate after the October meeting. I'm sure that their sophisticated modeling and math is far more rigorous than mine, but the final number is still in the same ballpark and still has the same overall message: no hike at either the September or October FOMC meetings.

My unchanged view is that although the Fed has a strong preference for inflation in the 1% to 2% range, even the 3% range is somewhat tolerable, at least for a a relatively short span of months or maybe even a year. Even with the most recent spike, oil prices still haven't advanced significantly beyond their peak for the year to date. Ditto for gasoline. Speculators are still bullish on commodities, but overall, commodities prices have lost much of their upward momentum.

It may take a number of months or even an entire year for inflation to pull back into even the 2% to 3% range, but the Fed has in fact done all of the heavy lifting and now has the luxury of sitting back and watching the fruits of its labors gradually take root.

General points:

• The economy has slowed enough that additional hikes are not clearly needed.
• The economy is still strong enough that another hike won't kill it or send it "spiraling" into recession.
• The economy is also strong enough that some further hikes could be needed a few more months down the road.

Although there are so many factors at work, it may be that we can simply use the price of crude oil as a "crude" surrogate for both the state of the economy and inflationary pressure. I would suggest that if crude oil pops up above $80 and stays there going into the September 20 FOMC meeting, a hike will be a done deal. On the other hand, if crude oil retreats closer to $70, a continued pause will be a no-brainer. Crude oil at $76 to $78 will suggest a higher probability of a rate hike. Crude at $72 to $74 would suggest a higher probability of staying paused. The $74 to $76 range is outright "coin flip" territory. Certainly the decision process is nowhere near that simple, but I suspect that my simplistic model won't be too far from being accurate. There are nits such as whether to use "spot" price or front-month futures, or to use the short-term peak futures price, but "headline" or front-month futures (September) are probably close enough.

Where does that leave us today? On Friday, the NYMEX crude oil futures contract for September delivery closed at $71.14 (versus $74.35 a week ago), which is clearly in the "no-brainer pause" range. October crude closed at $72.10 and becomes front month on Tuesday, but it also is in the "no-brainer pause" range. The peak short-term futures contract, August 2007 and September 2007, closed at $76.00 (versus $78.86 last week). Absent significant change over the coming weeks, crude oil suggests that the Fed will stand pat with a pause at 5.25%. As long as front-month crude stays below $76, the Fed can remain paused without too much criticism, but at $76 or higher, the Fed would be feeling the heat and opt to gain more "inflating-fighting" credibility with a hike to 5.50%.

The hurricane season has been very mild this year to date, but I said that last year at this time and then Katrina and Wilma came along. You can be sure that traders and speculators and planners will be hyper-alert for storm-related news, so we might not see crude oil futures pull back significantly until we get well into October. We could also see one or more "technical" pullbacks based of technical analysis by traders and speculators, but they tend to be following by matching rallies, until we finally see an economically-based decline.

Although much has been made about a presumed 1% to 2% "inflation target" for the Fed, the reality is that 2% to 3% is about "as good as it gets" for the kind of economy and financial system we currently have in America. Sub-2% inflation does in fact occur on occasion, but only in a fleeting manner. Bernanke also made clear during his confirmation hearings that he was inclined to stick with the status quo for now and move towards specific inflation targets only over time. So, don't worry about such a target this year and probably even next year.

My impression is that once the Fed pauses for several meetinsg and considers monetary policy to be "stable", it will be prepared to "hold its fire" if monetary policy is roughly "neutral" (i.e., in the 4.5% to 5.75% range) and one-year inflation doesn't pop too far above 3%. That begs the question of which measure of inflation to use, but in truth it doesn't matter a whole lot. If you want to use headline inflation rather than core inflation, then you simply need to expand the range moderately (say, from 3% to 4.5%) to reflect the nature of volatility due to short-term pricing spikes (e.g., gasoline) that occur no matter what the state of the economy.

Before the August FOMC meeting it was not clear whether Bernanke would lean more heavily in the hawkish inflation-fighting direction or in the more dovish growth-promotion direction. The pause at the August FOMC meeting made it abundantly clear that despite being serious about fighting inflation, he prefers to protect growth. Put another way, he probably despises inflation a little less than he despises deflation.

Another factor that cannot be overlooked is that this is an election year, and there is a tendency (but not a hard rule) that the Fed should "lighten up" going into a politically-charged election season and avoid appearing to be helping one party or the other. I personally don't think that this was a major factor in the Fed's thinking or will be in the next two months, but this factor is out there.

My view is that the Fed will keep their fed funds target rate paused at 5.25% for at least the rest of the year, and probably for the entire coming year.

-- Jack Krupansky

PayPal money market yield unchanged at 5.01%

Here are some recent money market mutual fund yields:

• iMoneyNet average taxable money market fund 7-day yield at 4.71%
• PayPal money market fund 7-day yield was unchanged at 5.01%
• ShareBuilder money market fund (BDMXX) 7-day yield was unchanged at 4.51%
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield rose from 4.97% to 4.98%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield rose from 4.45% to 4.46%
• 28-day (1-month) T-bill investment rate fell from 5.23% to 5.17%
• 91-day (3-month) T-bill investment rate fell from 5.12% to 5.11%
• 182-day (6-month) T-bill investment rate rose from 5.19% to 5.23%

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield. There is no minimum for a PayPal account, no fee for a basic account, and it can be linked to your bank checking acccount for easy access. Unfortunately, there are limits to how much money you can "receive" in your PayPal money market account each month. For example, I would not be able to move all of the cash in my Siebert taxable account to PayPal in one month.

Right now, 28-day T-bills feel more attractive for cash that you won't need for a month, but there is no guarantee that the interest rate on the next weekly Treasury T-bill auction will be as attractive. The other catch on the T-bills (besides being locked up for 28 days) is that the unit of investment is $1,000, so you have to find some other place to put any fraction of $1,000, including any interest you might accrue.

As always, please note that cash placed in money market mutual funds is subject the the disclaimer that:

An investment in the Fund is not insured or guaranteed by the Federal Insurance Deposit Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

In practice, that is not a problem at all, but it does incline me to spread my money arround a bit.

T-bills and the cash in your bank checking account or bank CD are of course "protected", either by "the full faith and credit of the U.S. Treasury" or the FDIC.

-- Jack Krupansky

ECRI Weekly Leading Index indicator for future growth continues to weaken, turns negative

The six-month smoothed growth rate of the Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) has weakened significantly over the past  twelve weeks (from +3.5% to -0.4%), although the actual level of the index is unchanged since last week and at the same level as the third week in June. A WLI of zero (0.0) would indicate an economy that is running at a steady growth rate, neither accelerating nor decelerating. A WLI fluctuating in a range from +1.5% to -1.5% would seem to be a relatively stable "Goldilocks" economy. Although the WLI smoothed growth rate is rather weak, it isn't showing any signs of the kind of persistent weakness (values more negative than -1.5% over a period of time) that would be seen in an economy that was slowing on its way into recession, but does look a lot like an economy moderating on its way to a relatively stable growth rate. If I were looking at this one indicator alone, I'd say that the Fed is succeeding at its goal of moderating the economy to a sustainable growth rate.

-- Jack Krupansky

Parking more cash in PayPal money market account

After reviewing my budget for August, I realized that I had a little extra cash which I won't need until the Fall sometime. I contemplated where to park this cash and settled on using my PayPal account which currently has a 5.01% 7-day yield.

I still haven't decided how to budget a trip to Washington, D.C. in the Fall. I may simply put it on my credit card to help build up a credit payment history, or I may accumulate the cash in an account such as my PayPal account and then transfer it back to my bank checking account to actually pay expenses as they are incurred. Another scenario is to park the cash in my taxable Siebert account since I have a debit card that can be used to charge actual expenses while I earn a semi-decent interest rate in the interim. I may also simply put all the charges on my credit card and then pay them at the end of the float period. In fact, I might simply put the cash into another 28-day T-bill that matures shortly before my credit card balance is due. The latter would probably give me the best rate of return. In the end, I may simply go with whichever method is both easiest and still pays a semi-decent rate of interest. The downside of my Siebert account is that it presently has n method for easily electronically transferring between my bank checking account.

Incidentally, this transfer to my PayPal account is for the maximum amount that PayPal will allow me to transfer in a single month unless I wanted to establish a non-basic account. Still, this works out nicely as a convenient place to park small amounts of cash.

-- Jack Krupansky

Fed likely to remain paused at 5.25% for the rest of the year

My view is that the Fed will keep their fed funds target rate paused at 5.25% for at least the rest of the year, and probably for the entire coming year.

As of Friday, Fed funds futures were predicting that the Fed will remain paused at their September20, 2006 meeting. October Fed funds futures predict a rate of 5.315%, or about a 26% chance of a hike and a 74% chance of no hike.

Further out, Fed funds futures predict a rate of 5.365% in December, suggesting less than a 50% chance of a hike to 5.50% in December. But, futures for January predict a rate of 5.380%, suggesting a little more than a 50% chance of a hike. Note that futures less than 45 days out tend to have some chance of accuracy, but further out futures are susceptible to very wild swings and changes in market sentiment and frequently reflect insurance hedges rather than outight bets.

My estimates are very rough calculations based on Fed funds futures prices. More accurate modeling of fed funds rate predictions based on options on federal funds futures can be found on the the Cleveland Federal Reserve Bank's web page for Fed Funds Rate Predictions. Based on their calculations from Thursday, there is a 77% probability of 5.25% after the September meeting, and a 73% probability of a 5.25% rate after the October meeting. I'm sure that their sophisticated modeling and math is far more rigorous than mine, but the final number is still in the same ballpark and still has the same overall message: no hike at either the September or October FOMC meetings.

My unchanged view is that although the Fed has a strong preference for inflation in the 1% to 2% range, even the 3% range is somewhat tolerable, at least for a a relatively short span of months or maybe even a year. Even with the most recent spike, oil prices still haven't advanced significantly beyond their peak for the year to date. Ditto for gasoline. Speculators are still bullish on commodities, but overall, commodities prices have lost much of their upward momentum.

It may take a number of months or even an entire year for inflation to pull back into even the 2% to 3% range, but the Fed has in fact done all of the heavy lifting and now has the luxury of sitting back and watching the fruits of its labors gradually take root.

General points:

• The economy has slowed enough that additional hikes are not clearly needed.
• The economy is still strong enough that another hike won't kill it or send it "spiraling" into recession.
• The economy is also strong enough that some further hikes could be needed a few more months down the road.

Although there are so many factors at work, it may be that we can simply use the price of crude oil as a "crude" surrogate for both the state of the economy and inflationary pressure. I would suggest that if crude oil pops up above $80 and stays there going into the September 20 FOMC meeting, a hike will be a done deal. On the other hand, if crude oil retreats closer to $70, a continued pause will be a no-brainer. Crude oil at $76 to $78 will suggest a higher probability of a rate hike. Crude at $72 to $74 would suggest a higher probability of staying paused. The $74 to $76 range is outright "coin flip" territory. Certainly the decision process is nowhere near that simple, but I suspect that my simplistic model won't be too far from being accurate. There are nits such as whether to use "spot" price or front-month futures, or to use the short-term peak futures price, but "headline" or front-month futures (September) are probably close enough.

Where does that leave us today? On Friday, the NYMEX crude oil futures contract for September delivery closed at $74.35 (versus $74.76 a week ago), which is only very modestly above the $72-74 "no-brainer pause" range. The peak short-term futures contract, June 2007, closed at $78.86 (versus $79.04 last week). Absent significant change over the coming weeks, crude oil suggests that the Fed will lean towards standing pat with a pause at 5.25%. As long as front-month crude stays below $76, the Fed can remain paused without too much criticism, but at $76 or higher, the Fed would be feeling the heat and opt to gain more "inflating-fighting" credibility with a hike to 5.50%.

The hurricane season has been very mild this year to date, but I said that last year at this time and then Katrina and Wilma came along. You can be sure that traders and speculators and planners will be hyper-alert for storm-related news, so we might not see crude oil futures pull back significantly until we get well into October. We could also see one or more "technical" pullbacks based of technical analysis by traders and speculators, but they tend to be following by matching rallies, until we finally see an economically-based decline.

Although much has been made about a presumed 1% to 2% "inflation target" for the Fed, the reality is that 2% to 3% is about "as good as it gets" for the kind of economy and financial system we currently have in America. Sub-2% inflation does in fact occur on occasion, but only in a fleeting manner. Bernanke also made clear during his confirmation hearings that he was inclined to stick with the status quo for now and move towards specific inflation targets only over time. So, don't worry about such a target this year and probably even next year.

My impression is that once the Fed pauses for several meetinsg and considers monetary policy to be "stable", it will be prepared to "hold its fire" if monetary policy is roughly "neutral" (i.e., in the 4.5% to 5.75% range) and one-year inflation doesn't pop too far above 3%. That begs the question of which measure of inflation to use, but in truth it doesn't matter a whole lot. If you want to use headline inflation rather than core inflation, then you simply need to expand the range moderately (say, from 3% to 4.5%) to reflect the nature of volatility due to short-term pricing spikes (e.g., gasoline) that occur no matter what the state of the economy.

Before the August FOMC meeting it was not clear whether Bernanke would lean more heavily in the hawkish inflation-fighting direction or in the more dovish growth-promotion direction. The pause at the August FOMC meeting made it abundantly clear that despite being serious about fighting inflation, he prefers to protect growth. Put another way, he probably despises inflation a little less than he despises deflation.

Another factor that cannot be overlooked is that this is an election year, and there is a tendency (but not a hard rule) that the Fed should "lighten up" going into a politically-charged election season and avoid appearing to be helping one party or the other. I personally don't think that this was a major factor in the Fed's thinking or will be in the next two months, but this factor is out there.

-- Jack Krupansky

Mini-stagflation

I see headlines with wording such as "Economists Contemplate Use of the Dreaded S-word", referring to a worry that we may be headed for a period of stagflation. According to Campbell R. Harvey's Hypertextual Finance Glossary, stagflation is "A period of slow economic growth and high unemployment with rising prices (inflation)." Technically, it doesn't look like we're even close to headed there since unemployment is still rather low, but some people believe inflation is headed much higher and growth is headed much lower.

Typcially, stagflation is associated with very slow growth (say, below 2% or even a recession) and very high inflation (say, above 5%). We aren't even close to being there.

Instead, may be approaching what could be called (by me, at least) a period of mini-stagflation, where growth is somewhat weaker than potential (say, below 2.5%), inflation is modedrately higher than expected (say, above 3%), and employment growth is weak but unemployment isn't yet considered a problem (say, fewer than 150K new jobs created each month or unemployment above 5.5%). We need to be careful to look at annual rates, over several quarters.

The worst we can say for sure at this point is that a mini-stagflation may be emerging. We won't know for sure for another six months, but right now we're actually in okay, but not great shape. Inflation is noteworthy, but not accelerating, jobs are still being created, and 2.5% growth isn't that bad.

You could also say that we are getting a whiff of mini-stagflation since the numbers have leaned in the that direction. The coming six months will give us greater clarity.

-- Jack Krupansky

PayPal money market yield down to 5.01%

Here are some recent money market mutual fund yields:

• PayPal money market fund 7-day yield fell from 5.02% to 5.01%
• 28-day T-bill investment rate rose from 5.21% to 5.23%
• 3-month T-bill investment rate rose from 5.11% to 5.12%
• 6-month T-bill investment rate rose from 5.17% to 5.19%
• ShareBuilder money market fund (BDMXX) 7-day yield rose from 4.49% to 4.51%
• Fidelity Cash Reserves money market fund (FDRXX) 7-day yield rose from 4.93% to 4.97%
• Fidelity Prime Reserves money market fund (FPRXX) 7-day yield rose from 4.44% to 4.45%

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield. There is no minimum for a PayPal account, no fee for a basic account, and it can be linked to your bank checking acccount for easy access. Unfortunately, there are limits to how much money you can "receive" in your PayPal money market account each month. For example, I would not be able to move all of the cash in my Siebert taxable account to PayPal in one month.

Right now, 28-day T-bills feel more attractive for cash that you won't need for a month, but there is no guarantee that the interest rate on the next weekly Treasury T-bill auction will be as attractive. The other catch on the T-bills (besides being locked up for 28 days) is that the unit of investment is $1,000, so you have to find some other place to put any fraction of $1,000, including any interest you might accrue.

As always, please note that cash placed in money market mutual funds is subject the the disclaimer that:

An investment in the Fund is not insured or guaranteed by the Federal Insurance Deposit Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

In practice, that is not a problem at all, but it does incline me to spread my money arround a bit.

T-bills and the cash in your bank checking account or bank CD are of course "protected", either by "the full faith and credit of the U.S. Treasury" or the FDIC.

-- Jack Krupansky

Fed likely to remain paused for at least the next year

As I expected, the Fed did in fact pause at the FOMC meeting today, but note that inflationary pressures are still a risk. Now, attention will focus on how much additional inflationary pressure might be needed to force the Fed back into hike mode.

My unchanged view is that although the Fed has a strong preference for inflation in the 1% to 2% range, even the 3% range is somewhat tolerable, at least for a span of months. Even with the latest spike, oil prices still haven't advanced significantly beyond their peak for the year to date. Ditto for gasoline. Speculators are still bullish on commodities, but overall, commodities prices have lost much of their upward momentum.

It may take a number of months or even an entire year for inflation to pull back into even the 2% to 3% range, but the Fed has in fact done all of the heavy lifting and now has the luxury of sitting back and watching the fruits of its labors gradually take root.

-- Jack Krupansky

Despite the spike in the price of oil Fed still likely to pause at 5.25% the FOMC meeting on Tuesday

Despite the spike in the price of oil on Monday which was caused by intense speculative buying of crude oil futures in response to news of a supply disruption in Alaska, the Fed is still likely to pause at 5.25% at the FOMC meeting on Tuesday.

Speculators in crude oil futures frequently choose to cast any news in precisely the light that helps their momentum plays, and conveniently disregard the truth. They ignore the Strategic Petroleum Reserve, acting as if it didn't even exist. The simple fact is that the world is presently awash in crude oil inventories.

Some of the rise on Monday was probably due to short-covering by bearish speculators who simply didn't like the news and exited their short positions, at least for Monday, but they'll be back soon enough.

Oil could rise a little further, but eventually the speculators will run out of steam, reverse, and then push the price back down. Ditto with gasoline futures.

As far as the Fed, the FOMC guys are smart enough not to pay too much attention to transient spikes in prices. Their focus is on forecasting demand and supply for longer periods of time. The key thing about Monday's spike was that it was driven by news of a supply disruption, and not any actual shortage, and certainly not any upwards spike in demand. In short, there was nothing that happened that the FOMC needs to worry about.

It may still come down to whether the Fed feels that it needs to establish "hawkish" inflation-fighting credentials by going for one more hike, especially in light of persistently elevated crude oil and gasoline prices. I think not, but it is certainly possible.

In short, my position remains that the Fed will hold its Fed funds target interest rate at 5.25% at the FOMC meeting on Tuesday, but will include wording that argues for vigilance and may even caution that further action may be needed if any additional inflationary pressures emerge in the coming months.

-- Jack Krupansky

Fed likely to pause at 5.25% the FOMC meeting on Tuesday

A lot of people are now believing that the pace of the economy has slowed sufficiently that the Fed can safely pause at 5.25% at the FOMC meeting on Tuesday.

Fed funds futures contracts for September suggest a target interest rate of 5.31%, which is much closer to 5.25% than to 5.50%. In fact, September futures suggest only a 24% chance of a hike to 5.50% on Tuesday.

The economy has slowed enough that additional hikes are not clearly needed.

The economy is still strong enough that another hike won't kill it or send it "spiraling" into recession.

The economy is also strong enough that even if the Fed "stands pat" and pauses, some further hikes could be needed a few more months down the road.

Although there are so many factors at work, it may be that we can simply use the price of crude oil as a "crude" surrogate for both the state of the economy and inflationary pressure. I would suggest that if crude oil pops up above $80 and stays there going into the August 8 FOMC meeting, a hike will be a done deal. On the other hand, if crude oil retreats closer to $70, a pause will be a no-brainer. Crude oil at $76 to $78 will suggest a higher probability of a rate hike. Crude at $72 to $74 would suggest a higher probability of a pause. The $74 to $76 range is outright "coin flip" territory. Certainly the decision process is nowhere near that simple, but I suspect that my simplistic model won't be too far from being accurate. There are nits such as whether to use "spot" price or front-month futures, or to use the short-term peak futures price, but "headline" or front-month futures (September) are probably close enough.

Where does that leave us today? On Friday, the NYMEX crude oil futures contract for September delivery closed at $74.76 (versus $73.24 a week ago), which is modestly above the $72-74 "no-brainer pause" range. The peak short-term futures contract, July 2007, closed at $79.04 (versus $77.06 last week). Absent significant change this week, crude oil suggests that the Fed will lean towards standing pat with a pause at 5.25%, but might well go for the eqtra quarter-point hike as a form of inflation insurance. As long as crude stays below $76, the Fed can pause without too much criticism, but at $76 or higher, the Fed would be feeling the heat and opt to gain more "inflating-fighting" credibility with a hike to 5.50%. There was an extra "hurricane" premium in the price of crude oil due to Tropical Storm Chris. Much of that premium reversed, but not all of it since we have a couple more months of hurricane season in front of us.

My personal forecast is still for a pause at 5.25%. Absent any change in the economy (or oil futures), a pause at 5.25% will be the likely scenario.

The real "action" in the August 8 FOMC announcement is the tone that the Fed will take on inflation going forward. Hike or pause, I expect the Fed to strike a strong stance on being "vigilant" and ready to pounce with great vigor if they see inflation begin to take flight.

Although much has been made about a presumed 1% to 2% "inflation target" for the Fed, the reality is that 2% to 3% is about "as good as it gets" for the kind of economy and financial system we currently have in America. Sub-2% inflation does in fact occur on occasion, but only in a fleeting manner.

My impression is that once the Fed pauses and considers monetary policy to be "stable", it will be prepared to "hold its fire" if monetary policy is roughly "neutral" (i.e., in the 4.5% to 5.75% range) and one-year inflation doesn't pop too far above 3%. That begs the question of which measure of inflation to use, but in truth it doesn't matter a whole lot. If you want to use headline inflation rather than core inflation, then you simply need to expand the range moderately (say, from 3% to 4.5%) to reflect the nature of volatility due to short-term pricing spikes (e.g., gasoline) that occur no matter what the state of the economy.

Fed Chairman Bernanke hinted at his last congressional appearance that the Fed may have gone far enough, that the economy has slowed somewhat, and that the effects of previous hikes have not completely propagated through the economy. The market has since adapted that view. Most importantly, no officials have disputed that view. Pausing at 5.25% seems consistent with the Fed's pronouncements and the market's actions.

On the other hand, it might come down to whether the Fed feels that it needs to establish "hawkish" inflation-fighting credentials by going for one more hike, especially in light of persistently elevated crude oil and gasoline prices. I think not, but it is certainly possible.

In short, my position remains that the Fed will hold its Fed funds target interest rate at 5.25% at the FOMC meeting on Tuesday, but will include wording that argues for vigilance and may even caution that further action may be needed if any additional inflationary pressure emerges in the coming months.

-- Jack Krupansky

My net worth is creeping back up: my asset to debt ratio is now above 50%

My plan to dig myself out of debt and get my net worth on a positive track is making good progress. My asset to debt ratio is now above 50% and I am on track to achieve breakeven by the end of the year. The asset/debt ratio moved from 49% to 55% over the past two weeks.

My debt consists exclusively of back taxes. My current financial plans emphasize savings and retirement plans over incremental installment plans to pay down those taxes. I will probably keep that bias towards savings for at least another year until I have a significant nestegg of assets and a substantial rainy-day fund. Only then will I shift and pay off those taxes more aggressively.

On the other hand, I might decide to pay off my New York State taxes before the end of the year since I do have the cash on hand to do it and it is a cash flow drag each month. I might even do it this month or in September just to get it out of the way.

Meanwhile I do try to pay a little extra each month to the IRS to make a dent in that larger portion of my debt.

-- Jack Krupansky

My next monthly ShareBuilder automatic investment (August 2006) is on Tuesday

My next monthly automatic investment through ShareBuilder will occur on Tuesday, August 8, 2006. The cash will automatically be debited from my bank checking account on Monday and the purchase (Microsoft (MSFT) stock) will occur "sometime" on Tuesday. There is a fixed $4 commission on each monthly purchase. This is the third monthly purchase for this new dollar-cost averaging investment plan.

The debit to my bank checking account doesn't seem to actually hit until Tuesday.

This investment plan is actually a very small plan, but when you're trying to rebuild your finances after a bankruptcy, every little bit helps.

I still haven't decided whether to switch this plan so that it contributes to a Roth IRA account.

-- Jack Krupansky

PayPal money market yield up to 5.02%

The 7-day yield for cash kept in the PayPal money market fund is now up to 5.02% as of August 1, 2006, versus 5.00% last week. That doesn't compare as favorably with the 28-day Treasury T-bill "effective rate" of 5.19% from the latest Treasury Bill auction (versus 4.99% last week), but is comparable to the 5.04% effective rate for a 3-month T-bill (versus 5.04% last week) and the 5.04% effective rate for a six-month T-bill (versus 5.13% last week). It is significantly better than the 4.49% 7-day yield in ShareBuilder (versus 4.46% last week), modestly better than the 4.93% 7-day yield in Fidelity Cash Reserves (FDRXX, versus 4.88% last week), and significantly better than the 4.44% 7-day yield in Fidelity Prime Reserves which Muriel Siebert uses for core cash in taxable accounts (versus 4.43% last week. And PayPal does not have any minimums or crazy restrictions even for relatively small amounts of money.

PayPal is looking like a fairly interesting place to store cash for both relatively quick access and a well above average yield. Unfortunately, there are limits to how much money you can "receive" in your PayPal money market account each month. For example, I would be unable to move all of the cash in my Siebert taxable account to PayPal in one month. Right now, 28-day T-bills feel more attractive for cash that you won't need for a month, but there is no guarantee that the interest rate on the next weekly Treasury T-bill auction will be as attractive. The other catch on the T-bills (besides being locked up for 28 days) is that the unit of investment is $1,000, so you have to find some other place to put any fraction of $1,000, including any interest you might accrue.

For T-bills I quoted an "effective rate", which is a calculation of my own based on the discounted auction price for T-bills in the most recent weekly auction. Teasury gives a "discount rate" and an "investment rate" which don't seem to make a lot of sense. My "effective rate" (or what I call the "annualized effective interest rate") calculation is as follows:

1. Take the auction price, or "discounted price". This is the amount that the investor actually pays to Treasury to buy the T-bill. In exchange, Treasury will return $100 to the investor when the T-bill matures.
2. Subtract the discounted price from the $100 "par price" and round to two decimal places since Treasury cannot actually return money to you in fractions of a penny. That is the "return" that you will receive upon maturity.
3. Divide that return by the discounted price. That is the return as a percentage or "percentage return" over the life of the T-bill.
4. Divide that percentage return by the number of days of "duration" of the T-bill's life, 28 or 91 or 182 days. That is the daily rate of return.
5. Multiply that daily rate of return by 365. That is the (simple) annual rate of return, which I am calling the "effective rate" or "annualized effective interest rate". Whether the multiplier should be 365.25 or 366 or 366 if February 29 occurs in the coming 12 months is unclear, but I simply use 365.

As always, please note that cash placed in money market mutual funds is subject the the disclaimer that:

An investment in the Fund is not insured or guaranteed by the Federal Insurance Deposit Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

In practice, that is not a problem at all, but it does incline me to spread my money arround a bit.

T-bills and the cash in your bank checking account or bank CD are of course "protected", either by "the full faith and credit of the U.S. Treasury" or the FDIC.

-- Jack Krupansky

Rolling over my 28-day T-bills for August

I only started investing in T-bills via TreasuryDirect in early July with an initial purchase of 28-day (4-week) T-bills on July 6, 2006. My plan was to roll these T-bills over every 28 days as they mature, but a number of details remained up in the air.

Last Thursday was the maturity date for my initial batch of T-bills and it was also was the issuance date for the roll-over into the second batch.

Everything went off without a hitch and it even looks like the roll-over occurs exactly as I would like it to occur, with the "payment" for the maturing bills hitting my bank checking account the same day as the debit for the new purchase of T-bills. In fact, the payment was sequenced first so that my bank checking account received the funds from the maturing T-bills before the debit hit to claim those same funds, minus the accrued interest, of course. Late Thursday evening my online bank checking account statement showed that the payment had hit, but the debit wasn't there yet. By Friday evening both the payment and debit could be seen in the online bank checking account statement, with the same date.

Unfortunately, there isn't any guarantee that such a sequencing of payment and debit will always occur in precisely the same manner, so I'll have to watch it carefully in coming months and try to make sure that I always keep sufficient funds in that bank checking account to cover the T-bills.

The good news is that the effective interest rate for the new T-bills is even better than I had expected. The discount price was $99.601778 per $100 par value. The annualized effective interest rate came to 5.19%. For my maturing T-bills from July, the annualized effective interest rate came out to 4.82%.

The issue date for this new batch of T-bills was Thursday, August 3, 2006. They will mature in 28 days, on Thursday, August 31, 2006. The auction was on Tuesday, August 1, 2006. There is an auction every Tuesday, but the next auction for me to roll over these T-bills will be Tuesday, August 29, 2006.

According to the official U.S. Treasury recent auction results, the investment interest rate on a 91-day (3-month) T-bill for Thursday, August 3, 2006 issance was 5.108% versus a rate of 5.212% for the 28-day T-bill and 5.174% on the 182-day (6-month) T-bill. It is atypical to see such a front-end T-bill inversion. I suspect that it is simply a matter of raw supply and demand, with the 3-month T-bill being the most popular T-bill, and higher demand leads to higher price which in turn leads to lower yield. It is also interesting that even the 6-month T-bill yields less than the 1-month T-bill. From a perspective of economic fundamentals, that would suggst a bet or belief that interest rates will fall over the coming month, but once again I suspect that the inversion is simply due to people needing to fill in the 6-month "rung" in their ladder, no matter what the return might be on the very short T-bill. In fact, the yield on the new-issue 6-month T-bill has fallen on each the the past three weekly auctions, suggesting rising demand. This might also be due to some people investing more money in bond funds as the stock market was looking rather dicey.

BTW, don't ask me why Treasury says that the investment interest rate for the 28-day T-bill was 5.212 which my calculation of "effective annualized interest rate" came out to 5.19%. I'll figure that out one of these days.

-- Jack Krupansky

Fed still likely to pause at the August 8, 2006 FOMC meeting

The weak Q2 GDP report led a lot of people to switch camps and argue for the Fed to pause rather than hike at the FOMC meeting next week. I didn't think the GDP number was that weak, but I retain my position that the Fed is more likely to pause than hike.

The economy has slowed enough that additional hikes are not clearly needed.

The economy is still strong enough that another hike won't kill it or send it "spiraling" into recession.

The economy is also strong enough that even if the Fed "stands pat" and pauses, some further hikes could be needed a few more months down the road.

Although there are so many factors at work, it may be that we can simply use the price of crude oil as a "crude" surrogate for both the state of the economy and inflationary pressure. I would suggest that if crude oil pops up above $80 and stays there going into the August 8 FOMC meeting, a hike will be a done deal. On the other hand, if crude oil retreats closer to $70, a pause will be a no-brainer. Crude oil at $76 to $78 will suggest a higher probability of a rate hike. Crude at $72 to $74 would suggest a higher probability of a pause. The $74 to $76 range is outright "coin flip" territory. Certainly the decision process is nowhere near that simple, but I suspect that my simplistic model won't be too far from being accurate. There are nits such as whether to use "spot" price or front-month futures, or to use the short-term peak futures price, but "headline" or front-month futures (September) are probably close enough.

Where does that leave us today? On Friday, the NYMEX crude oil futures contract for September delivery closed at $73.24 (versus $74.43 a week ago), which is in the $72-74 "no-brainer pause" range. The peak short-term futures contract, June 2007, closed at $77.06 (versus $77.14 last week). Absent significant change this week, crude oil suggests that the Fed will feel reasonably comfortable standing pat with a pause at 5.25%. As long as crude stays below $76, the Fed can pause without too much criticism, but at $76 or higher, the Fed would be feeling the heat and opt to gain more "inflating-fighting" credibility with a hike to 5.50%.

My personal forecast is still for a pause at 5.25%, but that's with an expectation that we could still see some weakening of inflationary pressures (e.g., the price of crude oil) over the coming week. Absent any change in the economy (or oil futures), a pause at 5.25% will evolve into the likely scenario.

I would also note that Fed funds futures are also a decent indicator of what the Fed will do once we're within a few weeks of an FOMC meeting. The September Fed funds futures contract closed at 94.6700, which roughly indicates a Fed funds rate of 5.3300% ($100 minus $94.6700 divided by $100), or closer to 5.25% than to 5.50%. A pause is twice as likely as a hike. I would note that there is a lot of daily and weekly volatility in the trading of Fed funds futures, so it is possibly for the outlook to change over the coming week.

The real "action" in the August 8 FOMC announcement is the tone that the Fed will take on inflation going forward. Hike or pause, I expect the Fed to strike a strong stance on being "vigilant" and ready to pounce with great vigor if they see inflation begin to take flight.

Although much has been made about a presumed 1% to 2% "inflation target" for the Fed, the reality is that 2% to 3% is about "as good as it gets" for the kind of economy and financial system we currently have in America. Sub-2% inflation does in fact occur on occasion, but only in a fleeting manner.

My impression is that once the Fed pauses and considers monetary policy to be "stable", it will be prepared to "hold its fire" if monetary policy is roughly "neutral" (i.e., in the 4.5% to 5.75% range) and one-year inflation doesn't pop too far above 3%. That begs the question of which measure of inflation to use, but in truth it doesn't matter a whole lot. If you want to use headline inflation rather than core inflation, then you simply need to expand the range moderately (say, from 3% to 4.5%) to reflect the nature of volatility due to short-term pricing spikes (e.g., gasoline) that occur no matter what the state of the economy.

-- Jack Krupansky

Rolling over my T-bills

I purchased a small quantity of U.S. Treasury 28-day T-bills using the TreasuryDirect online system early in July. Four weeks later, they have matured and now I'll roll them over into the next month.

Actually, T-bills are issued every week, so I will really be participating in the fourth auction since my prior purchase.

I placed my first order on Monday, July 3, 2006 for the auction on Wednesday, July 5, 2006 for issuance on Thursday, July 6, 2006, and maturity on Thursday, August 3, 2006. Normally the Auction is on Tuesday, but July 4 was of course a holiday.

The next auction is on Tuesday, August 1, 2006 for issuance on Thursday, August 3, 2006.

The proceeds from my maturing T-bills will be credited to my bank checking account sometime on Thursday or Friday, or whenever. I've never done this before, so I simply do not know the precise timing.

The discount payment for the new T-bills (the face amount minus the interest that will accrue over the term of the T-bill) will be due on Thursday, August 3, 2006 and debited from my bank checking account sometime on Thursday.

The open question is whether the credit and debit will hit on the same day and balance each other out (netting a small balance to my bank checking account), or whether I might have to eat the debit for a day or two while my bank clears the credit. Luckily I have enough cash on hand so that I can "swing the gap", but it would be comforting to know if the standard procedure is for the credit and debit to "cross" on the same day so that I don't need the extra cash.

The alternative would be to tell TreasuryDirect to credit the maturing T-bill proceeds to the "C of I" account associated with my TreasuryDirect account where it is immediately available to pay for the new purchase, and then manually transfer the net gain (accrued interest) back to my bank checking account for final disposition, but that's extra effort. C of I is short for Certificate of Indebtedness, which is short for Zero Percent Certificate of Indebtedness, which means that the U.S. Treasury keeps your money and agrees to pay it back to you any time you want, but pays you Zero percent interest on it. It's only value is as a convenience and to act as a staging area for purchasing new Treasuries and holding the proceeds of maturing Treasuries.

The other unknown is the exact interest rate that my new T-bills will return. It will probably be around 5.07%, but depend on supply and demand. Note that the Fed FOMC meets next week, so the Fed funds target interest rate will be going up, but the interest rate on 28-day and 3-month T-bills is lagging behind. Last week the new 28-day T-bill had an effective interest rate of 5.01% and the week before it was 4.95%.

-- Jack Krupansky