Auction-Rate Security Uproar Grows as Investors Pay Price for Yield. Note: Earlier today, Capital Advisors Group hosted a conference call entitled "Realities of the Failed Auction Market". Replay will be available for 15 days at: 866-837-8032 (access code 1207705). Capital Advisor's director of research Lance Pan, who has been warning of the risks in auction-rate securities for years, recapped recent events, advised tactics, and called for more transparency in the market. Pan said, "There is no industrywide data.... The dealers have not shared."
The current barrage of press coverage on the heretofore unknown auction-rate security, and smaller auction-rate preferred security, sectors, continues unabated. Today's Wall Street Journal contains no less than three articles on the topic, with the most interesting being James Stewart's "Risks of a 'Safe' Investment Are Found Out the Hard Way". Stewart experienced the market freeze-up first-hand, saying of ARPS, "They were sold as a liquid, safe, slightly higher-yielding, tax-exempt alternative to money-market funds.... Last year, when some money-market funds turned out to hold some mortgage-backed securities and faced a liquidity crisis, their sponsors stepped in and redeemed the shares at face value. This seemed the only decent course, not to mention a good investment in customer loyalty. But when I asked a broker at Merrill Lynch if it would do the same for owners of these money-market equivalents, the answer was 'no'." He asks, "So is any fixed-income security short of U.S. Treasurys and the biggest, most liquid money-market funds safe at this point?"
Other ARS articles today include: WSJ's "Issuers Ask SEC for Break Amid Auction-Rate Woes", "Bond Marketer Criticizes Firms Over Auction-Rate Securities", Bloomberg's (yesterday) "Gross Says Auction Bonds an 'Old Maid' for Investors", and AP's "TI unable to sell securities at auction", among others.
