Came across this little nugget from the US Dept of Treasury yesterday (though it was announced in early December 2007):

The annual limitation on purchases of United States Savings Bonds will be set at $5,000 per Social Security Number, effective January 1, 2008.

The reduction from the $30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest.

[There’s more about this here.  The process of limiting the purchases is especially onerous and comical: to reach the max you will have to buy both online and in person, in some cases buying at face value, others at half, though the limitation is the same.  This is admittedly the same as the previous policy to meet the max … but still: WTF?]

So I feel like I’m going all conspiracy-theory … but this announcement comes right when investors are fleeing anything affected by subprime (which is everything) causing a big credit crunch and hurting lots of stocks; only federal debt seems to be trusted.  While even slightly-advanced investors can still easily buy-up other forms of federal debt above the new $20,000 Savings Bonds limit, Savings Bonds are the most accessible instrument for novice investors. If When we hit a recession and the populace jumps out of the stock market, I would assume US Savings Bonds will be one of the first places to go?  Well, now the Treasury only lets you move $20,000 (and only $10,000 from the comfort of you computer), perhaps in an effort to prop up the stock market by limiting your alternatives?

A question/answer to help to dismiss/bolster my conspiracy theory:

Q. How much is annually purchased in US Savings Bonds?  Is there a big %-change during market drops?

A. Here’s the US Savings Bonds purchasing data for the last ten years, with the %-change over the previous year next to it.  (courtesy of the SF Gate’s recent article and some quick excel).  Take a look:

2007 $3.4 Billion (-60%)
2006 8.3B (+31%)
2005 6.3B (-20%)
2004 7.9B (-33%)
2003 11.8B (+20%)
2002 9.8B (+48%)
2001 6.6B (+26%)
2000 5.2B (+10%)
1999 4.7B (-2%)
1998 4.8B

The brief tech-bubble recession caused a pretty big market drop … “Nasdaq peaked at $6.7 trillion in March 2000 then plummeted to $1.6 trillion by October 2002.” (Source) … and 2002 saw the largest positive %-change in Savings Bonds purchases.  Coincidence?  Maybe.  One might also attribute the drop in Savings Bonds purchases since 2003 to the good returns in the recovering stock market?  (I don’t know what the deal with the 2007 number is … a really frothy economy? Or (more probably) just a partial number for the not-yet-done 2007?)

So while the flight-to-Savings-Bonds during a market fall may hold some water … my conspiracy theory about the new limits being put inplace to help keep the stock market up doesn’t seem right when you consider that the total issuance of US Savings Bonds is only in the single-digit billions.  The new US Savings Bonds limits really won’t make much difference in keeping money in the stock market.

And on an even more pragmatic note, I must say that it’s really not that hard to buy Treasury Bills/Notes/Bonds whose purchasing limits are much more generous $5M (per security type).  The Treasury Direct website - the same one you would use to buy Savings Bonds - has a ‘non-competitive’ auction bid process (it’s not ‘competitive’ because you agree to buy at whatever rate the auction determines rather than being able to set a stop/limit) that is right there for anyone interested.  So even with the Savings Bonds limits, there’s still lots of ways to buy lots of federal debt.

Update: I changed ‘recession’ to ‘market fall’ throughout the original post … although they’re correlated, I should’ve been clearer in my word choice.

The Wall Street Journal published “Insurer Woes Put Munis in Bargin Bin” today, echoing almost exactly what I said on 12-2 and 12-8 (and continuing the Journal’s own coverage on 12-8).  The article starts:

Bad news about bond insurers in recent days sent mutual-fund managers racing into the market - scooping up insured municipal bonds at a steal.

Just as predicted, more bond insurers are getting caught in the ’subprime’ mess and the prices of the munis they backed are dropping.   However, since munis rarely default, the lack of background insurance is battering their prices more than is likely justified.

I was excited - but ultimately disappointed - with the last section of the article entitled “Insurance Even Needed?” The WSJ could’ve made the case much more strongly that the insurance is redundant/unnecessary … but of course this is an article, not an editorial.

I’m still not jumping into the market until I feel bottom … and we’re not there yet.  None of the returns -at least for Massachusetts municipal bonds - look very appealing right now.  Of course some states are better;  maybe I should move to Maine or Wyoming or some other less affluent place without a well-off middle-upper class chasing tax-exempt interest on the same local bonds?  [That’s for another post…]

and fwiw: that my investment acumen was this accurate probably scares me more than it does you.

What list do you think the following information is from?

1. Boeing - $12 Billion
2. Northrup Grumman - $8.3 Billion
3. Lockheed Martin - $7.9 Billion
…
16. Cal-Tech - $1.2 Billion
22. University of California System - $845 Million
52. Stanford University - $359 Million

If you said the list is from the Top 100 Contracters for the Federal Government in 2007, you’d be right. 

Why are Cal-Tech, the UCs, and my alma mater Stanford on the list?  Cal-Tech’s funding comes from NASA while the UCs and Stanford are funded largely by the Department of Energy. 

What’s it going to?  UC gets $235 Million to run Lawrence Livermore National Laboratory (byline: “Science and National Interest”) and $197 Million to run Lawrence Berkeley National Laboratory.  Stanford gets $359 Million to run Stanford Linear Accelerator Center.

You can find out all of the above and much, much more from usaspending.gov.  Highly recommended.

Consider this: If you divide the $146 Billion of total Federal contracts budget by 300 Million Americans, it works out to costing ~$486 dollars per person.  Boeing’s $12 Billion in contracts is 8% of the total, so everyone in America - all 300 Million - effectively paid Boeing about $39 this year.  By comparison, every American only gave Stanford about $1.26 each.

Whether you think Boeing got too much, Stanford got too little, or none of the above, you’ll hopefully think something when you explore the site.

Extra Bonus Fun:
 - Each contractor has a nice little pie-chart that shows how the % of their contracts that were ‘competitive’, with multiple bids, etc.
 - I have only looked at the $146 Billion in contracts.  There’s another section called ‘Assistance’ (Grants) that is twice as big, at $290 Billion.

p.s. thanks to Brad for the link