Fear is creeping back into the markets folks. I see it in many areas. Treasury yields have collapsed as investors run for the hills into government bonds. You need to wonder(given our massive treasury issuance's) if this is the equivalent to running into a burning building.
Stocks have steadily fallen throughout the week as jittery investors look for someplace to hide.
Today it was quite apparent that gold and silver benefited from this flight to safety.
Right now its obvious that there is a lot of capital that is looking for a "safe haven" to ride out the storm. The problem is no one really knows where to hide! The confidence in the stock market has been shattered after such brutal volatility over the past 10 years.
When people ask me where to hide I must admit I have to just shrug my shoulders. I tell them that nothing is totally safe right now.
I mean let's go through the list of the supposed "safe havens":
1) Treasuries? HA! This may be the biggest bubble of them all. We are selling trillions of this stuff without the means to pay it back. Safe? Hardly. Shorting treasuries as a hedge is probably a smart thing to do if you park money here.
2) Money markets or CD's? Works for me as long as you are under the FDIC insurance limits. The problem here is will the dollar be worth anything over long term if we continue to print the USD like Monopoly money?
3) The mattress? Having a stash here in case of a banking holiday makes some sense, but anything more than that is just asking for disaster unless you live on top of a deserted mountain or live in an area with a 0% crime rate.
4) Stocks? HA! That's a funny one. This will make sense once the dividend yields get back up to around 6%. The average dividend yields right now are way too low given the risk you must take holding stocks at such elevated levels with high P/E ratio's.
5) Munies? I would stay on the short maturation end. Many states face the real threat of going bankrupt. California anyone? If you go there, avoid states with bubble economies.
6) High yield bonds? This has worked well over the past 6 months but I think this run is just about over. Corporate defaults are just beginning, and the Fed is rapidly running out of bailout money. Enter at your own risk.
5) Gold or Silver? I must admit I find myself gravitating towards these two. I own both metals, but there are risks here as well. Deflation can makes the metals risky, but the collapsing US dollar is an even bigger risk in my view.
The Bottom Line:
The way I see it, we could see 1932 all over again where both bonds and stocks collapsed. Take notice when you start seeing movements in gold. Moves higher in gold are a great fear indicator, and they can also be a great warning signal that inflation might be right around the corner.
If we do see inflation in the near term, it will be as a result of a collapsing dollar in my opinion. Remember, Argentina's currency collapsed 73% in a matter of weeks when the people lost confidence in its currency. Prices soared as a result.
What I see today is a lack of confidence in our economy and our government's response to it. Creating trillions of dollars in order to bailout a bunch of insolvent companies is making investors think twice as to whether or not they want to be invested in anything involving US dollars.
So what should you do with your retirement if almost every asset class looks shaky? Stay diversified in all of them and hope for the best. Also, hold something hard that will have value regardless of what the US does to it's own currency.
The way I see it, there really isn't much else you can do during such unprecedented economic times.
Must watch of the day:
As you can see below, the debt time bomb is ticking as our government is rapidly running out of money. That mattress option is looking better by the minute!:
Does the FDIC need a bailout?:
Analyst Jim Bianco thinks its possible: