The Least Dirty Shirt

[Coffee]

Europe is a "train wreck" and on the "brink of a major financial crisis," Scott Minerd, CIO of the fixed-income firm Guggenheim Partners, told CNBC Tuesday.


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"The way Europe is operating right now, it's what I called recently 'cognitive dissonance,'" Minerd said, or "basically doing the same thing thinking they're going to get a different outcome."

"They keep throwing more and more liquidity at it thinking it's going to get better and it's not," he added. Europe fails to recognize that it has a "structural problem, not a liquidity problem."

People will "flee the euro" unless they find a way to bifurcate the euro in some way where strong countries are in the euro only and the weak countries are out, Minerd explained, adding, "To be honest with you, I don't see the mechanism to do that."

"As the capital is flooding out of Europe, which we're starting to see now, the first place it's going to go is to the safe havens—[U.S.] Treasurys, which [the market] perceives to be safe, and it'll chase gold," he added.



Compared to a 2 percent return on Treasury notes, investors will eventually say that "stocks with price-earnings multiples of 12 or 13 or 14 look relatively cheap, and the growth for corporate earnings in the United States is very good, and this is likely to help us," said Minerd.

The United States is "the least dirty shirt in the bag," Minerd concluded. "We have a very good chance of seeing equities up maybe another 10 percent [over the next six months] from where we are."

[moda0306]

I really think when people look at the PP and ask themselves, "but how can gold and treasury bonds do so well at the same time," the one big glaring answer is:

Europe.

[doodle]

Europe has been a big boost to our treasury market, but unfortunately this is allowing the politicians here to keep kicking the can down the road instead of getting to work enacting the big changes that have to happen. I am stunned by how slowly things happen in Washington. Tax reform, immigration, defense spending, energy policy etc. etc. have been topics for discussion for decades, yet nothing tangible ever seems to get done.  

I had a dream/nightmare last night that I barged into Senator Bill Nelson's office and chewed him out about the terrible job he and his colleagues are doing. I was barking at him like a marine drill sergeant. It felt good. :P

[Gumby]

Europe has been a big boost to our treasury market.

Actually, when the market is in crisis mode, LTTs have an almost identical inverse relationship with Total Stock Market. They basically mirror each other — to the minute. So, whatever is affecting stocks negatively is usually a boost to LTTs. Even in the face of default this held true...

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[moda0306]

I love the dance that LTT's and TSM do.

Gold kind of does its own crazy thing and cash continues to be cash, but the dance that VTI and TLT do is really very important, and part of the reason when it comes to discussing bonds that these munis, mortgages, corporates and other crap are exactly that.

People have the following thought process with bonds:

- I don't like inflation, so I'll take on credit/default risk to beat inflation, and/or

- I don't like taxes, so I'll invest in munis to avoid paying taxes.



The PP's tax-efficiency and flexibility if used correctly within tax-deferred and traditional accounts should count for maybe another implied .5-1% return, depending on your situation, over a similar hodge-podge of "diversified" income-producing investments.

[stone]

moda "Gold kind of does its own crazy thing",

Doesn't gold (expressed in USD) provide an link to the broad index of world currencies against the USD ? Viewed after converting to Japanese Yen or Swiss Francs, USD LTT don't look as though they have offered quite so much protection (82 yen to the USD on May23, now 77 Yen to the USD, 0.88 Francs to the USD then, 0.77 now).

[Gumby]

moda "Gold kind of does its own crazy thing",

Doesn't gold (expressed in USD) provide an link to the broad index of world currencies against the USD ? Viewed after converting to Japanese Yen or Swiss Francs, USD LTT don't look as though they have offered quite so much protection (82 yen to the USD on May23, now 77 Yen to the USD, 0.88 Francs to the USD then, 0.77 now).

I think you're describing the inverse of the Dollar Index, not Gold. Gold is its own currency — which just happens to be priced in dollars. Technically, it's possible for every currency on the planet to depreciate while gold appears to rise in value against all of them (when in reality the purchasing power of a 1oz of gold stays about the same).

[stone]

Coffee, I just meant that often when people see the  gold USD price going up and down they think gold is being very volatile BUT much of that apparent volatility is from what the USD is doing. I think I might have been saying the same thing as you but in a muddled way .