Fernando Capeto for Forbes; Photo by PM Images/Getty Images
Cryptocurrency exchangeCoinbase is sitting on a $1.5 billion pile of phantom cryptocurrency pegged to the price of ether. Binance has a similar $750 million stash. These tokens, created to be used in what are essentially lending programs, are just entries in the exchanges’ computers, but to outside observers they appear as assets sitting in their corporate crypto wallets.
Binance’s 400,000 tokens would suddenly come to life if investors decide to use the exchange as an intermediary in posting ether (ETH) collateral to the Ethereum blockchain through a process called liquid staking. But until they do, anybody seeking to determine the amount of Binance’s assets would have to subtract the value of the spectral crypto from the visible total, now $2.77 billion, according to data from Arkham Intelligence.
Things might be clearer if Binance actually published its balance sheet, which would be expected to show a corresponding liability. However, despite 70 million customers worldwide, it doesn’t share financial details with the public. “Those [tokens] not in circulation are held in a specific reserve account with strict controls and multi-party approval,” says a Binance spokesperson.
Coinbase–which declined to comment for this story and is facing a likely enforcement action from the Securities and Exchange Commission related to its staking offerings–does not count its unreleased assets on its balance sheet, but does disclose them in its SEC filings.
Welcome to the fast-growing world of liquid staking. Staking in crypto parlance involves posting a digital asset like ether to a blockchain as collateral in exchange for the right to process transactions and earn in-kind rewards like tokens. Staked tokens are normally locked up for a period of time so they can’t be immediately withdrawn and cause a run on the platform…….
Last week Apple effectively dropped the mic on the nation’s banking industry. While the average bank is paying less than a half a percent on savings accounts, the $2.6 trillion technology company announced it would be offering 4.15% annual returns to savers – no minimums, no lockups and FDIC-insured.
The new product rollout comes at a time when regional banks are scrambling in the wake of the Silicon Valley Bank crisis to maintain their deposit bases, and cash-starved fintech startups are likewise struggling. Technically Apple doesn’t have a banking license. It is fronting for Goldman Sachs Bank USA, otherwise known as Marcus, which has a state charter and is FDIC-insured.
In fintech parlance, Apple is a neobank like Chime, Revolut and Monzo – except its brand strength is unparalleled given that there are more than two billion iPhones globally, now serving as Goldman’s branch network. According to polling company Gallup’s annual “Confidence in Institutions” survey, last year, prior to SVB, only 27% of Americans reported to have a “great deal or quite a lot” of confidence in their banks.
That number is down from its peak of 60% in 1979. By contrast, Apple landed in the top spot for the tenth consecutive year in 2022 according to Interbrand’s annual Global Best Brands ranking. The only bank to make the top 25 was JPMorgan, ranked at 24, just ahead of YouTube.“Apple goes at warp speed and a lot of banks are driving 45 mph in the right lane,” says Wedbush Securities analyst Dan Ives.
The new high yield savings account is only available to customers with Apple’s credit card, Apple Card. These users can have an account set-up in minutes and their spend rewards, called daily cash, are automatically funneled into the high yield account.
The account will be displayed on a dashboard in Apple’s digital wallet where users can track their balance and interest earned. The product allows Apple to offer yet another sticky iPhone benefit by strengthening its built-in digital wallet.
“It’s really a flywheel of keeping everything in the ecosystem,” says David Donovon, executive vice president of financial services for consulting firm Publicis Sapient….
The new savings account is only the latest in a series of high-profile financial offerings from the Cupertino technology blue chip. Last month, the company began offering its own buy now, pay later product giving consumers the option to split payments into four installments with zero interest or fees.
Social media is flooded with real estate promotions, and no one is sure what laws apply. But when things go wrong, investors and tenants have a lot to lose
Last summer, Hamilton realtor Sean St Cyr promoted a lucrative real estate investing opportunity across a number of Facebook groups. Investors could receive an average annual return of 20.2 per cent, the post stated, if they gave him a minimum of $100,000 to purchase a derelict three-storey building in the city’s east end, an area that has been in decline since a steel plant there started running into trouble decades ago.
“Have you ever wanted to learn how to make serious money in real estate like the pros?” Mr. St Cyr said in one of his many promotions for the deal. On Facebook, Instagram and LinkedIn, Mr. St Cyr regularly shares tips with his thousands of followers about how to make money through real estate investing. They are posted alongside photos of his travels and meals from the 35 countries he says he has visited.
Mr. St Cyr, a self-described international real estate investor and foodie, is one of the many investors looking for other people’s money, or OPM, on social media to fund real estate deals. He and legions of other promoters have helped fuel the real estate investing craze in Canada that revved up when home prices soared and COVID-19 restrictions led people to spend more time online.
Every day, across the country, there’s a steady stream of requests in Facebook groups and personal pages for money to buy rental properties. Many of the promoters are everyday Canadians who have learned investing techniques online themselves. Some of them promise mind-blowing profits and often dispense real estate investment advice.
No one knows how many investors have got involved in real estate because of this explosion of online promotion. But over the first year of the pandemic, investor buying of residential properties doubled in Canada. By the middle of last year, investors accounted for more than a fifth of the country’s home purchases.
However, with interest rates rising and real estate markets cooling, promoters may not be able to deliver the profits they have promised their investors. That has upped the pressure on them to further raise rents, worsening the country’s affordable housing problem at a time when inflation has eaten away at Canadians’ pocketbooks.
When things go wrong with real estate, they can really go wrong. Tenants, including society’s most vulnerable, can be harshly evicted in the name of investment returns. Investors, many of whom call themselves risk-averse, lose their life savings. And no one has a full grasp of the impact these investors have on the real estate market.
Regulators do not appear to be paying attention, either. Many promotions appear to be skirting securities rules. Promoters are either unaware of the rules or know they can get away with not complying with them. Without enforcement, promoters are raising capital with little to no legal scrutiny…Continue reading
Regions Financial Corp., which serves customers in 16 states in the South and Midwest, is one of several regional banks offering preferred stock yields higher than 6%. Getty
In a year when prices of both stocks and bonds have fallen in concert, some think preferred equity now combines the best of both worlds for investors with cash to spare who are still wary of taking on the risk of the stock market. Preferred stock, a type of equity most commonly issued by financial institutions or utilities companies, is issued at a face value, usually $25, and offers regular dividend payments to shareholders.
Unlike bonds, preferred stocks have no maturity date when the principal must be repaid, though a company can redeem a class of preferred stock anytime after the “call date” provided for each issue. In a worst-case scenario of liquidation, owners of preferred stock are repaid before common stockholders, but after bondholders if any assets remain. If banks reduce dividend payments like some did during the 2008 financial crisis, they’re typically required to pay preferred dividends in full before bringing regular dividends back to normal as well.Many issues of preferred stock are offering yields of over 6% now after price declines driven by higher interest rates. Bank certificates of deposit are yielding as much as 3.5%, high enough that billionaire investor Ray Dalio reversed course on his oft-repeated axiom and said “I no longer think cash is trash” on Monday. 10-year Treasury yields have climbed near 4% too, but investors who are looking for higher steady interest payouts with limited additional risk could look toward these preferreds at regional banks that few think are in any serious trouble.
“This downturn is something that banks are prepared for. They haven’t overlent to the housing segment and there are much better underwriting standards than were in place in the 2000s leading up to the housing crisis,” says Argus analyst Stephen Biggar. “The health of the underlying equities I’m not concerned about, but this market is anything goes. People are bidding things to extremes–rates to high extremes and stocks to low extremes–but you’ve got to look at this as a long-term owner.”
Biggar singled out preferred stock at regional banks like KeyCorp KEY , Fifth Third Bank FITB , Regions Financial or PNC as fairly safe buys. Martin Fridson, CEO of Income Securities Advisors and editor of Forbes’ Income Securities Investor newsletter, highlighted southern bank Synovus Financial Corp. and First Republic Bank FRC , which caters to high net worth clientele in affluent areas like southern California, Palm Beach and New York, as additional recommendations.
Biggar prefers the regional banks to multinational Wall Street giants, which are more impacted by a slowdown in deal underwriting and M&A activity, and has little concern about their ability to ride out a moderate recession. “You don’t just aim for the highest yield because they tend to get there for a reason,” says Biggar. “You want to be comfortable as if you’re buying the equity in the company. That means strong, stable banks that don’t have outsized exposure.”
During the Great Recession, preferred stock yields generally rose as high as 8% to 9%, so prices could still fall further. But Fridson thinks there’s less risk in preferreds than in corporate “junk” bonds, whose yields are also climbing. The effective yield of the ICE BofA U.S. High Yield index is 9.37%, its first time above 9% since a brief spike in March 2020 at the beginning of the pandemic, but since Treasury yields are also climbing, the risk-reward profile is less appetizing.
The spread between the high-yield index and benchmark Treasury yields is 543 basis points, according to Factset. Fridson says that’s still close to the normal range, which averages 467 basis points during non-recessionary periods, and the spread can exceed 1,000 basis points during a recession. The BofA U.S. High Yield Index spiked as high as 22% in November 2008, when corporate insolvency concerns reached a crescendo. The index’s total return so far this year is -14%, but if yields continue rising to anywhere near that 2008 level, it could get a lot worse.
“It’s hard to make the case that there’s been an irrational stampede out of high-yield bonds and they’re giving them away,” Fridson says. “Preferreds are definitely a place to look for some pretty secure returns, given the quality of the parent companies in a lot of these cases.”
Dividend yield is a stock’s annual dividend payments to shareholders expressed as a percentage of the stock’s current price. This number tells you what you can expect in future income from a stock based on the price you could buy it for today, assuming the dividend remains unchanged.
For example, if a stock trades for $100 per share today and the company’s annualized dividend is $5 per share, the dividend yield is 5%. The formula is annualized dividend divided by share price equals yield. In this case, $5 divided by $100 equals 5%.
It’s important to realize that a stock’s dividend yield can change over time either in response to market fluctuations or as a result of dividend increases or decreases by the issuing company. So the yield is not set in stone. It’s most useful as a metric to help determine if a stock trades for a good valuation, to find stocks that meet your needs for income, and to let you know that a dividend may be in trouble.
Most stocks pay quarterly dividends, some pay monthly, and a few pay semiannually or annually. To determine a stock’s dividend yield, you need to annualize the dividend by multiplying the amount of a single payment by the number of payments per year — four for stocks that pay out quarterly and 12 for monthly dividends.
If you’re looking to collect dividends as often as possible, stocks that pay monthly may be ideal. Most (though not all) monthly payers are REITs, or real estate investment trusts. This category of companies benefits from some tax advantages that allow them — actually, require them — to pay above-average dividends.
One of the most popular is Realty Income (NYSE:O), which we can use as an example. As of June 2022, the most recent dividend was $0.247 per share, and the share price was $66.44. Let’s use the formula in the previous section to determine the dividend yield.
A monthly dividend of $0.247 times 12 equals an annualized dividend of $2.964 (rounded). That $2.96 dividend divided by a share price of $66.35 equals a dividend yield of 4.5%.
If you’re calculating a stock’s yield, be careful. Don’t just assume that the next dividend payment will be equal to the last. Companies occasionally issue special dividends, and dividends can also get cut. Take the time to research the company and make sure the dividend yield you think a stock will pay matches up with reality.
The dividend yield shown on many popular financial websites can also be misleading. These sites often report trailing dividend yields, and sometimes they still show a yield that’s no longer accurate even after a company has announced a dividend cut……
Inflation bond: the ultimate protection against the rising cost of living. If you know what you’re doing, you get a real yield of 1.9% on these U.S. Treasury securities. If you don’t, you’ll get a lousy deal, a bond paying 0%.Why on earth would people buy a 0% bond when the 1.9% alternative is right at hand? Because they follow the advice of naïve personal finance commentators.
The naïfs are in love with I bonds. These are savings bonds that track the cost of living. There are negatives: They have a purchase limit of $10,000 a year, they have restrictions on early redemption and they can’t be put in a brokerage account.Worst of all, I bonds have a 0% real yield. Your interest consists of a nothingburger return plus an inflation adjustment. In purchasing power, you break even.
Smart money is going into the other kind of inflation-adjusted Treasury bond, called a TIPS (Treasury Inflation Protected Security). TIPS have no purchase limit, no restriction on your ability to get out early, and no trouble going into your brokerage account.Best of all, TIPS have a positive real return. The ones due in five years pay 1.92% annually. In purchasing power, you gain 9.6% over the five years.
I can forgive the experts who were gushing about I bonds back in January. At the time, the five-year TIPS had a real yield of -1.6%. At 0% for the real yield, the I bond was clearly the better buy, apart from the inconveniences attached to getting and holding the thing.
I bonds can be held for 30 years, after which they stop accruing interest. You can’t cash them in during the first year. In years two through four, a redemption comes with a penalty equal to three months of inflation adjustments. After the five-year mark you can cash in whenever you want, collecting your full 0% return (that is, full recompense for inflation).
Where to get those TIPS? You have two options. One is to own a bond. The other is to own a bond fund. There are pros and cons to each. or the bond, arrange with your bank or broker to submit, close to the deadline, a non-competitive tender at the next auction of five-year TIPS. The tentative Treasury schedule, to be finalized on Oct. 13, is for the auction to take place on Oct. 20.
At Fidelity Investments there is no fee for an auction order placed online; the maximum buy is $5 million. Other financial institutions have similar deals. TIPS yields could go up or down over the next two weeks. If they go up, hurray. If they go down a lot, you could choose not to participate.
If you hold that bond until it matures, you are certain to collect the return set at the auction. If you cash in early by selling in the secondary market, you could be looking at either a windfall capital gain or a windfall loss, depending on whether interest rates go down or go up. That’s a fair bet, but selling would mean getting nicked by a bond trader, who will pay slightly less than the bond is worth. I’d recommend a direct bond purchase only if there’s a pretty good chance you can stand pat for five years.
The alternative is to own shares of a TIPS bond fund. Two I like are the Schwab U.S. TIPS ETF (ticker: SCHP, expense ratio 0.04%) and the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP, 0.04%). The Schwab fund has bonds averaging 7.4 years until maturity; the Vanguard portfolio’s average maturity is 2.6 years. A 50-50 blend of the two funds would give you the same interest-rate excitement as a single bond due in five years.
The advantage to the funds is that they are very liquid. The haircut from trading is typically a penny a share round-trip (that being the bid/ask spread), a tiny percentage of a $50 stock.
The disadvantage to the funds is that you can’t nail down what real return you’re going to get between now and October 2027. The funds keep rolling over proceeds from maturing bonds into new bonds. The portfolios never mature.
What that means: You could wind up doing better or worse with the funds than you would have with a single bond due in five years. It depends on what path interest rates take. Again, it’s a fair bet, but you may not like this kind of uncertainty.
I’ll now address two supposed benefits to I bonds: that you can’t lose money and that you can defer tax on the interest. Can’t lose? Only in the sense that an ostrich with its head in the sand can’t lose. Savings bonds are not marked to market. You can’t see your loss.
Buy a $10,000 I bond today, and you become instantly poorer. If you plan on staying put for five years, your investment should now be valued at $9,100. That’s all your future claim on the U.S. Treasury is worth, given where TIPS yields are. If you have the sense to get out at the earliest possible date (12 months from now), then the damage is less, but it’s still damage.
The other supposed advantage to I bonds is the deferral of income tax on the inflation adjustment. This is not the bonanza you may think it is. Our current tax law is set to expire at the end of 2025. After that, tax rates are going up.
Both I bonds and TIPS adjust the interest they pay based on changes in inflation and are backed by the US Treasury, which means there is little risk of defaulting on those interest payments. But those similarities also come along with significant differences. The most important difference is that while you can buy up to $10 million worth of TIPS through Fidelity at auction, and an unlimited amount on the secondary market, I bond purchases are limited to $10,000 per person per year and are only available on the Treasury’s website, not through your brokerage account.
I bonds also require that you not touch the money you invest in them for a year and if you do so during the following 4 years you must forfeit the most recent 3 months of interest payments. These limits on both quantity and liquidity represent obstacles for both savers who want liquidity and for investors who want yield. While I bonds’ high interest rates may look appealing, a closer look at TIPS may reveal them to be more useful inflation fighting tools.
I bonds, TIPS, and taxes
Semi-annual interest payments on TIPS are subject to federal income tax, just like payments on conventional Treasury securities—or I bonds.
Any increase in the value of the TIPS principal is subject to federal tax in the year that it occurs—even though you won’t receive any income from the increase. On the other hand, when the TIPS matures or is sold, you will only pay federal tax on the final year’s increase in principal while receiving the full increase in principal since the date of initial purchase. Like all Treasury securities, TIPS and I bonds are exempt from state and local income taxes. Investors should consult their tax advisors regarding their specific situation prior to making any investment decisions with tax consequences.
While I bonds are only available at TreasuryDirect.gov, investors interested in diversifying their portfolios with TIPS can choose from individual bonds, mutual funds, or exchange-traded funds. The approach you choose should reflect your ability and interest in researching your investments, your willingness to track them on an ongoing basis, the amount of money you have to invest, and your tolerance for various types of risk. There are pros and cons for both individual bonds and bond funds. In some cases, it may make the most sense to own both. Learn more about the differences between individual bonds and funds here: Bonds vs. bond funds
TIPS are also used by professional investment managers to help protect portfolios from specific risks, says Lars Schuster, institutional portfolio manager with Strategic Advisers, LLC. “While higher inflation can be problematic for some bonds, TIPS exposure might help protect the value of the fixed income portion of a well-diversified portfolio,” he says.
You can buy TIPS directly from auctions held by the US government and at Fidelity.com. TIPS are available in 5-, 10- and 30-year maturities, at auctions spread throughout the year. You can also buy and sell individual TIPS with various maturities and prices from other investors in the secondary market. Fidelity.com does not charge fees or mark-ups on these transactions. You can learn more at Comparison of TIPS and Series I Savings Bonds
Fidelity also offers research tools including the Mutual Fund and ETF evaluators on Fidelity.com. Below are the results of some illustrative screens using the search terms “taxable bonds” and “fighting inflation” (these are not recommendations of Fidelity).