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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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In a shaky economy, investors go for security of T-bills

OF ALL the stark articles I’ve read about the condition of the credit markets, a column by Alan Abelson in last weekend’s edition of Barron’s hit home hardest.

Abelson, who typically writes the lead column for Barron’s and has been bearish for many months, ran a chart of the yield on a three-month U.S. Treasury bill.

Three-month Treasuries are considered about the safest investment possible, and fear-gripped investors have been flocking to them. Demand for the bills drives the price up and the yield, or the interest payment, down.

Late in the trading week of Sept. 15, before Treasury Secretary Henry Paulson announced his plan for a $700 billion government rescue, T-bills were yielding zero, which hasn’t happened since the Great Depression. Abelson sums up the meaning of that brilliantly:

"Investors were so gripped with fear and desperate for a haven that they poured into the bills even though the yield was nonexistent. In effect, they were willing to pay the government for keeping their money safe."

Since then, things have improved slightly, but the yield remained below 0.5 percent late Friday morning, showing that investors are still nervous and seeking safety.

Embrace cheapness

Although it’s possible that Americans are overly fearful right now, there is good reason for concern. Foreclosure rates have soared, unemployment is up, retirement accounts are down and news of bank failures grows more common.

All of this is forcing many Americans to keep a close eye on what they spend. But that’s not a bad thing, says Jeff Yeager, author of the highly entertaining and wisdom-filled book "The Ultimate Cheapskate’s Road Map to True Riches." The book is available on his Web site–ultimatecheap skate.com.

Yeager is speaking today at 10 and 11:30 a.m. at the Unitarian Universalist Fellowship of Fredericksburg at 1115 Caroline St. Assuming he speaks as well as he writes, it should be a most enjoyable service.

Yeager’s book shows that living cheaply doesn’t mean living unhappily. In fact, the reverse is true.

He shows how we have become accustomed to owning gigantic houses and multiple cars, eating out too much, not exercising enough and thinking we need to shop until we drop. Changing one’s mindset leads to peace of mind and happiness.

Yeager said he grew up in the Midwest and was raised in an environment where "spending money was a last resort."

He thinks the recent economic woes will force Americans to drive less, live more simply, take vacations closer to home, get creative with entertainment, buy more modest homes and pay them off sooner, and eat better–all of which he believes will lead to happiness.

"There can be a lot of positives that come out of this," he said.

Yeager points out that the U.S. has just come out of a period that represented the most prosperous time in world history. Yet during that time the government and its citizens went into massive debt, and Americans became less happy.

Yeager, who was first dubbed the "Ultimate Cheapskate" by Matt Lauer on NBC’s "Today" show, said the two greatest assets people can have are to be debt-free and to know how to live well on little cash.

"It’s the age of the cheapskate," he said.

And maybe that’s not so bad.

Permalink: http://news.fredericksburg.com/businessbrowser/2008/09/28/in-a-shaky-economy-investors-go-for-security-of-tbills/