Friday, June 1, 2012

Where is the Safe Haven?

As we end an awful month for the market may investors are looking for safe havens to protect their money.  The way to find safe havens is easy, just follow the trends.  We hear a lot of great narratives about how investors should be buying gold, but the biggest gold ETF, GLD, was down 6.34% last month according to Morningstar.  By my definition a safe haven doesn't go down as much as the market. Does that mean gold won't eventually be the place to be?  No, at some point it could (and very well might be because it can act as a surrogate currency and certainly would be better than owning Euros or Drachmas) but unless you can call the bottom it makes no sense to invest until the trend turns around. 

That leaves Treasury Bonds (or cash if you are content to protect and don't care about making money) as the only safe haven.  The largest long term Treasury ETF, TLT, was up 9.02% last month according to Morningstar.  Treasury yields also told us that the rally we saw in the market a couple of days ago wasn't real as the market rallied but yields barely budged.

This trade is not for the faint of heart, it is based purely on fear and that can change on a dime.  Also, for long term buy and hold investors (which doesn't work but people still try to do it anyway) Treasuries at these yields don't make a lot of sense.

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