33: 18th Century High-Speed Traders; Literally A Better Mousetrap; Terminix (TMX); I-Bond Arbitrage
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Alexander Hamilton
I’m about halfway through rereading Ron Chernow’s superb biography of Alexander Hamilton. It’s the book that inspired the hit Broadway play and inspired me to make Hamilton the face of Watchlist Investing. For me, the book hits the sweet spot of history and finance. There are all sorts of gems, including the one below.
Hamilton was the architect of the American financial system. What he put together is simply incredible. In one passage (p. 303 if you’re following along at home) Chernow describes how news of Hamilton’s famous Report on Public Credit would have been slow to move throughout the thirteen states.
Enterprising individuals set off to buy securities from those in the south who hadn’t yet heard the news, which probably would have taken weeks to fully assimilate. They were in effect the high-speed traders of their day—high speed being a relative term of course. Nothing compared to the nanoseconds those in the business today face.
A Better Mousetrap
Our house gets its fair share of mice every year. Controlling them is a continual battle of bait stations and snap traps (we think the sticky ones are inhumane). The classic snap traps look like this:
Our pest company recently introduced us to the “T-Rex” manufactured by privately-owned pest control company Bell Laboratories. I love it as much for its function as for the fact that someone literally invented a better mousetrap. They’ve made it easy to set up—just press and it clicks into place. And it’s easy to reuse—the hinge keeps your fingers away from the mouse so you can dispose of it easily.
Lastly, I’ll tie this into stocks by noting we changed pest control companies this year. We moved to a smaller local/regional company from Terminix. Terminix, which is publicly traded under the symbol TMX, simply fell flat on their customer service. When a friendly salesperson from the new company showed up we were already primed for a switch.
I wasn’t surprised at all to see TMX’s financials are in a dismal state. Coincidence? I think not.
I-Bond Arbitrage (NOT investment advice)
I’ve urged several family members to take advantage of Series I Savings Bonds issued by the US Treasury. At first glance, they seem too good to be true. The coupon on the bonds today is 7.12%. And they are risk-free in that they are backed by the full faith of the US government. So they’re equivalent to a US Treasury Bond.
What’s the catch you ask? Well, they are only available to US citizens and residents, and can only be purchased in amounts up to $10,000 per social security number. There are other quirks like having to hold them for at least five years or forfeit three months of interest for early redemption. The interest rate is tied to inflation and adjusts every six months—so it could go down, but that would be offset by inflation, maintaining your purchasing power.
I got to thinking that an individual could profit by borrowing on a home equity line of credit (which usually has a fixed rate) to buy the I-Bonds. Even if inflation dropped to 0% over the next six months when the bonds reset and you lost three months of interest, you’d still end up with a result better than other options.
Another play might be to take advantage of 0% credit card offers, bank the cash, and put it into the I-Bonds.
This is all probably a little “cute” and I should just focus on finding good businesses to own. But I couldn’t help but think about how to maximize the return from a little “loophole” in the credit markets.
Stay rational! —Adam
