Displaying items by tag: safe haven

(New York)

Not only did the stock market fall 3-4% yesterday, but something very unusual happened alongside it—yields rose. Historically speaking, it is rare for yields to rise when there is a big stock selloff, as investor generally flee to the safety of Treasuries. Selloffs can portend economic weakness to come, which makes bonds seem more attractive.

FINSUM: This is quite a worrying development and is reflective of the current environment. No one can get comfort from the “safe haven” of Treasuries because it seems very likely yields will keep rising on the back of the strong economy. In other words, there is no place to hide (other than in hedged investments).

(New York)

Gold has been in an extraordinary multi-year slump. From its peak of around $1,900 a few years ago, the shiny metal has sunk into a multi-year bear market, recently settling at around $1,200 an ounce. However, a couple of factors are coming together that may mean the bad times are over. The first is that there has been consolidation in the mining sector, but secondly, because the pending trade wars have meant that central banks have been buying more gold as a safe haven. This type of demand rose 8% since last year, and gold buying by central banks is off to its best start since 2015.

FINSUM: Unfortunately, we have to disagree with this article. Buying gold as we move into a higher-rate and stronger Dollar period contradicts all the fundamentals of the market. Furthermore, we think if gold was going to benefit from trade war fears, it would have already started.

(New York)

Something very interesting is happening on Wall Street. Just when US outperformance over global assets has been peaking, US analysts are urging clients to move their money into emerging markets. The catalyst for the recommendations is that the Fed’s tightening cycle is getting more intense, which means US equity values might be peaking before a downturn. That, coupled with currently weak emerging market valuations, means EMs seem to have better upside.

FINSUM: We see the argument, but must disagree. There are two reasons why. Firstly, emerging markets have tended to do badly in periods of rising US rates, and secondly, because EMs will feel the pinch of the trade war, which means their economies are likely to be hurt even more than the US’.