Click to Enlarge There has generally been a very high level of animosity towards any investment with associated interest-rate risk. However, that rushing tide of resentment might be starting to slow. Recently, the iShares 20+ Year Treasury Bond ETF (TLT) hit a new year-to-date low and bounced higher. This likely was due to long-duration Treasuries hitting oversold levels combined with the fear of a Middle East conflict sending money pouring back into high-quality bonds.
I recently outlined the three reasons why I believe we will see at least short-term stability in bonds. However, a great deal of turmoil might be lurking if the Fed does decide to taper its asset purchases in September.
I am keeping my bond exposure very short in duration with a slant toward high-yield and floating-rate note funds that have outperformed. Underperforming bond sectors that I am avoiding right now are emerging-market, municipal and TIPS positions.
Gold: Pause for Applause
Click to Enlarge While there are numerous fundamental reasons for owning gold that can be debated ad nauseam, I have always taken a more balanced and technical approach to owning the precious metal. Back in June, I predicted that the SPDR Gold Shares (GLD) was getting oversold due in large part because of the tremendous pessimism surrounding its downward spiral.
Since that time, GLD has rallied nearly 20% from its low.
GLD has now regained several key technical levels and is in a strong uptrend thanks in large part to a weaker U.S. dollar and strong foreign demand. In addition, gold bullion typically acts well during times of global turmoil as a flight-to-quality instrument.
Despite its harried momentum, I would not be surprised to see GLD take a breather at this point. We might see some backing and filling that will work off some of the overbought indicators and allow for systemic buyers to return to this sector. Short-term traders should consider taking some profits off the table at this juncture and look to use additional weakness to their advantage. Ultimately, I think a minor correction in gold will be a healthy and constructive event to continue its upward progress.
The Final Word
As you are flipping burgers on the grill this Labor Day weekend, spend some time giving thanks to the little things in life that make you happy. Without our friends, family and health, none of this investing game really matters.
But when you return from the long holiday, consider the opportunities and risks that we are presented with for the remainder of the year, and position your portfolio to benefit from these trends. You will sleep better at night knowing you are making proactive changes to enhance your returns — no matter how the next four months play out.
David Fabian is Managing Partner and Chief Operations Officer of Fabian Capital Management. As of this writing, he was long USMV. To get more investor insights from Fabian Capital, visit their blog.