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Alternatives for cash


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In this market situation in which it is difficult to find ideas with wide margin of safety,


What assets do you use as an alternative to cash?


I suggest these two Ultra-short-term bonds ETF:


1) SPDR® SSGA Ultra Short Term Bond ETF




2) SPDR Barclays 1-3 Month T-Bill ETF




Any other ideas to hold cash?

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I actually think those are the worst forms of cash because they don't take advantage of being small. I am an individual looking to keep cash measured ok tens of thousands not tens of millions or billions. Therefore, I can use CD's and I-savings bonds to earn returns that are not only above those of cash but are also above those of most IG credit (and certainly on a risk adjusted basis).


I buy $10K of I-bonds / yr so that the ones I bought a year ago become cash (you are locked in for the first year but may redeem thereafter for a small penalty ( I think it is 6 months interest). I do use leverage to keep my exposure up to reduce the opportunity cost of holding all those, so that kind of defeats the purpose but I am trying to build a substantial I-bond position and it takes time with the $10K limit)


And if you need more than $10k / yr in cash, I suggest the next best thing is a 5 yr CD with a redemption penalty that allows you to get your money back any time. The GE one used to be 2.5% and had a 9 month penalty. So the way I looked at it was it had FDIC type credit risk, had a capped duration (the ability to redeem for a 1.8% penalty acts as a interest rate payer swaption that protects you) and paid more than intermediat term invesent grade credit which had more credit risk and duration of 5-6.



If you want to build an i-bond position without much opportunity cost you can do something like this:

Instead of owning 300 shares of Berkshire($43,000), you could own $30K of i-bonds  and 3 $110 Jan 2017 calls for $4000 / contract ($12K). you pay $40 per call and lose $5 of premium over 18 months, $3.33 / yr, so it cost you about 3% annualized in premium but you get a 24% OTM put and a call option on inflation. When I did this it was like 1.5% / yr which made it more attractive (and Berkshire was at $110 and I was buying $80 calls).


But my point still stands, you don't have to sacrifice net exposure and have too much cash to build a nice i-bond position over time since leverage (either margin or non-recourse call option) can be used to replicate exposure. This is probably beyond the scope of the thread, but I just wanted to point that out since when I tell my friends of the joys of i-bonds (0% pretax real return with no duration or credit risk , woooohooooo!!!) they point to the long term opportunity cost of building such a position. 

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I would like to hold cash in € sometime in the future and that gives me some problems. What happens with € at IB if one of the banks IB holds its cash in goes bankrupt? Into what currency is it converted should the € break? At a german bank i can be sure to get german marks, but at IB i am not sure, a basket of currencies?

What if my account is at a german bank that was bought by a france bank, is my account than switched to the france currency?


Is there a tradeable money market fund with only german short term bonds?

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It might be a bit too high at this point in time, but WLRH regularly fluctuates at prices between $9.90 and $10.75. It's a SPAC with Wilbur Ross and it has less than a year left to announce a deal - if no deal is announces the fund will liquidate and shareholders will receive approximately $10 per share.


I use this as a riskier form of cash and regularly purchase shares when it's around $10 and sell them as they get nearer to $10.50. This has multiple benefits:


1) Much more potential upside than cash in the event that a deal is announced while you hold the shares

2) Potential to trade in and out of the shares as the price rises/falls to generate a "yield" of around 5-7% pre-tax.

3) Near certain downside protection around $10 per share until a deal is completed due to knowledge that you'll get $10 back if no deal is announced by December.


This is definitely higher risk than cash because the market could just decide to value this thing at 0.01 and you'd end up having to wait until the fund liquidated to get your full cash back and that might be in several months, but I think the likelihood of this is close to nil. Beyond that, you have a relatively certain downside that you choose with your buy-price and have the opportunity for much greater upside than cash.


It currently trades for around $10.60 so it's a bit rich relative to the potential $10 downside, but if you are patient there are opportunities to trade it and will likely be more before it liquidates. I've entered and exited 2 separate times in the past year and hoping to get in one last time before the deal announcement deadline in December.

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