Enhancing, or romancing, the cash-- Plus: Miner Crystallex's drama heightens

By Thom Calandra, CBS.MarketWatch.com Last Update: 2:00 PM ET June 16, 2003

SAN FRANCISCO (<a href=cbs.marketwatch.com>CBS.MW) -- This is for the folks with the $5 trillion of money-market funds throwing pennies into the jars of investors.

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The world over, investors are engaged in a search for greater and greater returns, especially against paltry yields from money markets and other cash-linked deposits.

Pimco, which manages assets in excess of $100 billion, says that "enhanced cash investments," or a mix of short and longer-term debt securities across different investment grades, can dramatically improve returns.

All you have to do is learn to live with a little volatility in the bond markets.

Or the currency markets.

Investors of late have been looking outside the U.S. for higher-yielding certificates of deposit. A 6-month certificate of deposit in Australia, for example, yields about 4 percent, far more than a similar one in the U.S.

But back to the bond market. "Two tough years for bonds were 1994 and 1999. During both periods, the U.S. economy was strong and interest rates rose, hurting bond performance," say Paul McCulley and Paul Reisz of Pimco, which specializes in fixed-income securities.

The two managers, who are part of Pimco's enhanced cash team, say investors seeking alternatives to that 1 percent money-market deposit might consider a selection of so-called ultra-short debt maturities, those of six years and less.

During the rocky bond market in '94 and '99, for instance, ultra-short and short investment-grade bonds, and short municipal debt strategies performed positively, they say. "The ultra-short strategy had slightly stronger performance as a result of its shorter duration or reduced exposure to interest rate risk."

A word of caution for those who think they easily can triple their money market returns with little or no risk: They can't. Creating a mix of laddered maturities in a portfolio is wise for supplementing an investor's cash allocation over five or more years, the two money managers say.

"Over the past five years, for example, taxable money market funds, as tracked by Lipper, returned 4.16 percent, while ultra-short funds returned 4.74 percent and short investment-grade funds 5.49 percent," say McCulley and Reisz. This is the kind of difference investors feel in their wallets, especially in the long run."

The article by the Pimco money managers was published in Investment Advisor Magazine.

The Calandra Report

I'll have more in The Calandra Report later this week on several fronts, including an exclusive natural gas story that may become one of the world's most sought-after investments. I'll also have more on the takeover drama unfolding around Crystallex International (KRY: news, chart, profile).

The miner told the Toronto Stock Exchange on Monday it knew of no corporate reason for a nearly 100 percent gain in the company's shares over a week. The gains came in trading activity that was three to six times average daily volumes for the company's American Stock Exchange and Toronto-listed shares.

Last week's edition of subscription service The Calandra Report examined Crystallex's efforts to develop Venezuela's Las Cristinas, one of the world's largest proven, and untapped, gold reserves. On Monday, Gold Mining Stock Report's Robert Bishop, quoted at length last week in newsletter The Calandra Report, reiterated his belief the Toronto-based company will receive a takeover offer, or some other backing from a big company, and soon.

"Venezuela's National Assembly has now said on four occasions that Crystallex has legally been designated to be the operator of Las Cristinas (foreign companies never own projects in Venezuela, they obtain rights to operate projects)," Bishop said Monday morning.

"Las Cristinas is simply too large a gold deposit selling at too low a price to escape the attention of larger companies," Bishop, one of the longest-running and most highly regarded gold-mining strategists in North America, told his subscribers.

"My observation about some party moving on Crystallex by the time of the company's annual meeting (in another week) is more an observation that management needs to be in a position to offer the prospect of a future that's markedly different from the past, or risk the open revolt of its shareholders."

Bishop, speaking to me from his California office, said Crystallex chief executive Marc Oppenheimer was seen attending the shareholder annual meeting of Glamis Gold (GLG: news, chart, profile) in recent weeks. His attendance at the larger gold company's May 7 Toronto meeting may be sparking speculation in the shares, says Bishop, who believes at least one mining company is conducting due diligence on Crystallex.

I placed a call Monday to Oppenheimer, with whom I spoke last week in San Francisco. I also placed a call to a company spokesman, A. Richard Marshall. On Monday afternoon, Marshall told me he would contact Oppenheimer. Marshall said the company's executives sometimes attend other gold miners' shareholder events to monitor the industry.

Nevada-based Glamis produces gold from mines in Nevada, Mexico and Central America. The company produced 251,000 ounces last year and says in its corporate presentations that it hopes to double that amount.

Those who read The Calandra Report know exactly where I stand on the Crystallex story. As Bishop said, the stock market is valuing a roughly 21-million-ounce Las Cristinas resource, some 9.5 million ounces of that considered a proven reserve, at roughly $5 to $6 an ounce. Crystallex International shares Monday afternoon were selling for $1.76 on the American Stock Exchange and $2.34 Canadian (CA:KRY: news, chart, profile) on the Toronto Exchange. Thom Calandra's StockWatch is CBS MarketWatch's flagship column. The regular report is in its eighth year at CBS.MarketWatch.com. Thom Calandra is also author of subscription service The Calandra Report.