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How badly did investors want to put their cash into safe-havens during yesterday’s huge sell-off? Money market rates went negative at one point during the day.
That’s right it actually cost you a fraction of a penny to exchange your cash for shares of a money-market fund. And money-market funds are more similar to the dollar than any other the asset in the world.
Treasury bonds did pretty well, too. The iShares Barclays 20+ Year Treasury Bond ETF (TLT) was up 3.5% to $105. It’s rallied 10% since July 25. Demand for Treasuries is high, investors aren’t just fleeing risk. It’s more like a stampede. Not coincidentally, the S&P 500 is down 10% in over the exact same period of time.
Even gold and silver reversed from new all -time nominal highs and finished lower on the day. Gold prices closed $35 off their early highs. That’s a big move for a traditional safe haven. And we’ve seen it happen before.
During the financial market crash, funds and individual investors alike sold whatever asset they had for whatever they could get. It was like the entire market got a margin call.
Yesterday had that kind off feel, volume was heavy and the decline was relentless all day. It was like a hedge fund or two was blowing up.
Only I think the market’s biggest fear was that the euro was going to blow up, along with the European Union.
One irony here is that some U.S. creditors (China and Russia) have been openly questioning the safety of the Treasury bond holdings in response to the Congress’ default flirtation.
I can’t say I blame them. U.S. corporate CEOs were starting to make some direct pleas to Congress to get it together.
But still, when the going gets tough, the tough buy Treasuries. (Hint to China: if you want to lighten up on holdings a little, now might be a good time. TLT is approaching a 2-year high.)
Japan got in on the action, too, with an open market intervention to weaken the yen. The dollar didn’t stand a chance and rallied right along with T-bonds. Even Switzerland cut interest rates to weaken the Swiss franc on Wednesday.
Countries are actively devaluing their currencies around the world.
One of the investments in the U.S. Debt Protection Fund special investment report from ETF Master Portfolio even lost a little yesterday’s sell-off. This investment is an ETF, and it’s rallied as much as 18.9% since late June, 15.5% in July alone. It’s held its own while the S&P 500 sold off. But even this ETF couldn’t withstand yesterday’s "risk-off" action.
It’s not a levered ETF, and it’s still done better than the long bond ETF mentioned earlier, TLT. If you’re looking for some safety and upside opportunity, you can read more about the U.S. Debt Protection Fund HERE.
There’s apparently a rumor going around that margin requirements for gold will be raised. Silver got killed when that happened a few months ago. That may have something to do with the big reversal for metals yesterday.
Oil prices got creamed as well, down over $5 to $85 a barrel. Some are saying this is the silver lining of yesterday’s sell-off. Apparently, they believe that of Americans spend less on gas over the next few weeks, it will mean they have more money to spend on other things, and that will help economic expansion in the second half.
While it’s true that if you spend less on one thing, you have more money for other things, the notion that lower oil prices set the stage for growth is stretch.
As we know, oil prices are a measure of growth expectations. Oil fell because expectations have come down a lot. The minute traders get any sign that consumers may be spending more, they will buy oil. At that point, we might expect better economic data, but not before. Lower oil prices tell us to expect weaker economic data.
Nonfarm payrolls came in better than expected. And the stock market is still not happy.
So what should individual investors do now? First, don’t panic. We’ve known this recovery would be a slog, and corrections will happen.
Second, be ready to buy stocks when they sell off hard. Some of the best companies in the world are already trading with attractive valuations. And the economy isn’t going to be in the tank forever. Debt issues will be dealt with, and we will see a real economic recovery in the future.