WSJ on Mercedes Corp Notes
The Wall Street Journal's Jason Zweig wrote a column on Friday, entitled, "Mercedes Wants to Borrow Money From You. Should You Bite? Short-term corporate notes offer more yield but less safety." He tells us, "This spring, tens of thousands of people who own or lease a Mercedes-Benz vehicle are receiving an unusual direct-mail offer: an invitation to invest in short-term securities from Mercedes paying a 2.5% annual rate. That looks like a limousine of yield alongside the jalopy rates of less than 1% you get right now on most bank accounts, certificates of deposit or money-market funds." The piece explains, "Whether the Mercedes cash vehicle or others like it are right for you depends primarily on whether you think of cash as an offensive or defensive investing weapon. If you urgently need to squeeze more income out of your cash, it might make some sense to put a small portion in such a high-yielding issue. Many investors, however, regard cash as a bulwark against the risk of loss elsewhere in their portfolio -- and in the other aspects of their life, for that matter. In that case, cash is no place to run unnecessary risks, no matter how small." In terms of the program's success and limitations, the Journal says, "The Mercedes offering, launched in 2014 and sold more widely since last year, is called a privately placed floating-rate demand note. You generally can't invest unless you earn at least $200,000 a year ($300,000 if you file taxes jointly) or have $1 million in net worth, not counting your primary residence. There's no public market for the securities, which are issued by Mercedes-Benz Financial Services USA. You can withdraw your money at will and receive the proceeds back in two to three business days, according to the company.... Several other companies have issued short-term, floating-rate demand notes directly to the public, including Ally Financial, Caterpillar Financial Services Corp., Duke Energy, Ford Motor Credit Corp., and General Motors Financial Co."
