Stormy weather, but are there any safe ports?

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Since financial markets bottomed out during the Spring of 2009, investors have become accustomed to a smoother ride in asset values. 

Barring a mid-2010 hiccup, a look at the charts of the NASDAQ Composite index and the Dow Jones Industrial Average shows a relatively clean upward trend. Commodity prices have also tracked the markets up.

On Friday, however, the markets lost their nerve, and the NASDAQ gave up its gains for the year while the DJIA slipped below the 12,000 point level. Silver futures (SLV) collapsed in May, which led to a critical loss of confidence in other commodity assets like gold ( GLD ), and the news that China is relying less on exports may unsettle investors who view the economic titan's growth as vital to the health of the global economy.

So if stocks are faltering, commodity prices are uneasy and emerging markets (VWO) may take a breather, where does the wary investor turn? The obvious haven has always been Treasury notes, but no less an expert on bonds than PIMCO's Bill Gross has said that he thinks they are a losing bet in the long term, though he has tiptoed back towards the assets a bit. After all, the debt ceiling debates  can't have US bondholders feeling very secure. Making a deal between Democrats and Republicans looks difficult, and separating real intention from political theater is getting harder.

And those looking at the shocking numbers atop the gas pump and seeing a potential bull market in oil were disappointed by Saudi Arabia's decision to cut some times with OPEC and go ahead with boosting production to keep the cost of petroleum stable.

No obvious safe harbors offer shelter from these economic crosswinds. Emerging markets like Brazil and South Africa look fundamentally healthier than the big economies of the euro-zone or the U.S., but they have their own political liabilities and rely too heavily on commodity exports. Still, they seem more secure and less burdened with debt and falling credit ratings.

Some investments in foreign countries have done well on the strength of their currencies - the Australian dollar, Swiss franc and Brazilian real have all appreciated against the greenback over the past year, boosting foreign investors' returns from those nations. Australia and Brazil look set to continue supplying China with vital raw materials like oil, soybeans and coal, though a shock to the Chinese economy, in the form of an imploding housing bubble , could undercut that strength. Switzerland's currency has gained as it manages to avoid the troubles currently afflicting the European Union's common currency, a factor which also benefited the Norwegian krone. Of course, the krone also benefits from Norway's supply of oil.

There are no sure bets, but investments in nations with strong, stable currencies and a plentiful supply of vital raw materials might be the best long-term bets right now.

Disclosure: the author is long BRF, SLV and EWS.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




Referenced Stocks: GLD

Daniel Pereira


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