Uncertainty over the resolution of the fiscal cliff and
related potential tax hikes are making most investors nervous.
Many of them are selling stocks to avoid the potential rise in
taxes next year and seeking refuge in "safe-haven" assets.
While it is most likely that the policymakers will reach some
sort of compromise to avoid the cliff; an early resolution does
not appear likely at present. (
Three ETFs for the Fiscal Cliff
)
Continued problems in the Euro-zone and weak corporate
earnings in the U.S. are further adding to the investors'
worries. As a result the stocks fell to their three-month low
yesterday, while the "safe-haven" assets have risen during the
same period.
Despite very low or even negative real returns; the investors
continue to pour money into the treasuries. Further, the
minutes of the Federal Reserve's last meeting indicate that it
would probably announce a new program of long-term bond purchases
in December when the Operation Twist expires. So, while the
treasuries may be very risky for long-term investors, they may be
a good shorter-term trade.
Barclays 20 Year Treasury Bond Fund (
TLT
) which measures the performance of longer-term U.S. Treasuries
is up about 5% in the last three months and more than 50% in the
last three years.
Gold (
GLD
) is back in focus due to fiscal cliff issue and continued
monetary expansion, up about 8% in the last three months. With
its bull-run lasting more than a decade, some people think that
gold prices may be in a bubble but as a matter of fact, the
inflation adjusted prices are still below the highs reached in
the 1980s and the long-term investment case for gold remains
intact.
Among the currencies, the dollar and the yen have attracted
investors' attention, but the safe-haven demand for the US dollar
is somewhat offset by the expectation that the Fed may be
ready to take further action again to counter the negative impact
of the fiscal cliff on the US economy. Deutsche Bank USD Index
ETF (
UUP
) is down 2% in the last three months, but it is up more than 2%
in the last one month.
Which of the above (treasuries, gold or the dollar) is poised
to benefit most from the "flight-to-safety" trades?
SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-BR 20+ (TLT): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
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