Out of Bonds and into Equities, Gold and Real Estate

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di Finanza Operativa 21 Aprile 2015 | 13:00

di Walter Snyder, Swiss Financial Consulting

This newsletter has frequently referred to the unprecedented situation created by extremely low interest rates for the last several years, the great amounts of liquidity created by QE in the US and now Europe and Japan, very high sovereign debt in the US, Europe and Japan, the Chinese push to make the yuan a reserve currency, the guilt of the Americans for having caused the great recession of 2008 and, more recently, the overvaluation of the US dollar. If one adds to all that the difficult geopolitical situation in the Ukraine, Syria, Iraq, Yemen and Afghanistan in addition to the Iranian nuclear programme, a certain pessimism regarding the future of global economic growth cannot easily be dismissed as mere caterwauling.

Careful and cautious investors will have long since moved out of bonds, which have such miserable returns that staying in cash is much less risky. Audacious hedge fund managers have bought up Ukrainian bonds at 40% of their nominal worth while others try to make profits with Argentine paper, always a daring game. Gold has proved to be a safe haven for currencies that have lost value against the dollar, and the suggestion to keep 5% to 10% of a portfolio keyed to the yellow metal seems quite reasonable. While American equities continue to rise in price along with the increase in value of the dollar, acquiring dollar equities makes sense as long as the positive trend holds. When the change in direction comes and how great it will be cannot be accurately predicted, but it will come and investors would do well to take their profits before it does. The proposal to invest in Chinese equities, made some time ago, was a very good one as the Chinese stock market has made great gains in the last six months. The PBoC will certainly try to keep the value of the yuan stable so as to facilitate its acceptance as a reserve currency by the IMF this year. The real question is how much further the prices can rise. Volatility is only to be expected.

Real estate investment is rather tricky because it is much less liquid while land and buildings cannot be moved, thus making location and condition two important factors that are sometimes difficult to evaluate precisely. Prices in some areas have reached very high quotations, for example, London. It behooves investors to avoid committing funds to properties that are overpriced… Continua a leggere su Finanzaoperativa.ch.

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