The debt ceiling talks have become so convoluted that the President has been forced to have secret meetings. Now it’s the Gang of Six’s turn to come up with a solution. Meanwhile gold has moved over $1,600 per ounce as fears ratchet up. What happens when a deal is struck? Watch out below.
As I’ve often said, gold is currently in a bubble that continues to inflate, yet it possesses no dividend, creates no earnings, earns no interest and is, at best, a speculative play that will get investors feverish while it’s running and then will have them running for cover when it’s falling. Remember those who speculated that oil, at $150 per barrel, would be heading to $200 or $250? They lost their shirts.
Of course, last week’s market rally simply puts the exclamation point on what I’ve been saying all along about bailing out of this market because of the uncertainty around what the government is, or isn’t doing. Time in the market, not market timing, is how I’ve made plenty of money over the last two decades.
The crackerjack researchers at my investment company, Adviser Investments, put together some data on how the markets have behaved after big, seminal and often nerve-wracking events. In every case it paid to sit on your hands. Period. Oh, and if you’re worried about a government shutdown—don’t be. During the Clinton-era shutdowns of late 1995 and early 1996 (there were two of them, close together) the stock market rose, bonds gained, and foreign markets were higher, no doubt helped by a falling dollar.
Of course, some people still think the U.S. Treasury will default. It won’t. But if there’s a downgrade, do you really think the fear trade is going to move to, say, German bunds? If U.S. Treasurys aren’t the last refuge, I still don’t know what is.
And get this: There’s growing speculation that even a credit downgrade would send more buyers (worried buyers) into Treasurys, rather than fleeing them.
The action in the TIPS market is also very counterintuitive (such as the rush to Treasurys in the face of a supposed default) and could only be the result of falling interest rates, which boost prices on long bonds, rather than investors who really think inflation is about to come roaring back. In fact, inflation expectations have been coming down, and yet iShares Barclays TIPS Bond Fund (ETF) (NYSE:TIP) is up 7.3% for the year through last Wednesday, far ahead of any other bond fund. I would not be a buyer.
