It is now fourteen days after the dreaded August 2nd, and the world has changed.
Congress and the President staved off a US default, Europe has not caved (yet), Wall Street saw the most hectic two weeks since 2008, and the United States lost its coveted “AAA” rating from Standard and Poor’s.
Plus don’t forget dismal unemployment reports and an additional downgrade of Fannie Mae and Freddie Mac. All in all, the last two weeks have been a very interesting experiment in post-apocalyptic ideology.
The roller coaster ride on Wall Street last week indicates three points. To start, the roller coaster proves that investors simply have no idea where to turn in these historically painful times, as everything we hold dear in terms of investing and net worth continually seems to slip through our fingers into the never ending hole of debt, asset destruction and currency printing presses. The market has jumped up, fallen down, moved sideways, diagonally, and every which way, all the while mauling portfolios and forcing investors to cry for mercy.
Last week’s chaos also seemed to prove that gold, the age old currency of centuries, is still, well, the age old currency of centuries. This should come as no surprise, and, almost predictably, the SPDR Gold Trust Shares (GLD) performed very well in the past week.
However, another exchange traded fund has also turned into “gold,” in spite of its new AA+ credit rating: United States Treasuries. Is “AA+” the new “AAA?” The iShares Barclays 7-10 Year Bond Fund (IEF) ETF speaks for itself with its parabolic lift in the last few weeks.
In spite of all of the ballyhoo surrounding the deficit and downgrade of the US economy, US Treasury Bonds have become just as good as gold, as IEF, for example, has been on a steady uptrend throughout the recent turmoil.
Interestingly enough, however, another “usual suspect” in the safe haven arena, US Dollars, have tanked in recent days as the greenback has moved from reserve currency into the realm of flimsy and combustible paper. The PowerShares DB US Dollar Index Bullish Fund (UUP) ETF illustrates the demise of US Dollars quite well.
And finally, on the other side of the Atlantic, Greece, Italy, and Spain continually prompt EU leaders to interrupt their summer vacations and try to “summit” the enormous mountain of debt and demise. The ProShares Ultra-Short Euro (EUO) ETF has experienced some choppy water lately due to overall investor confusion on where to invest, but if the herculean effort to save the Euro zone ultimately fails, this ETF could post some dramatic results in its also near parabolic soar.
So as investors strive to navigate these global financial tidal waves, one option for safe harbor looks like gold, (GLD) which still holds its position as the ultimate means of exchange as it has throughout human existence. Another option would be to invest in ETFs related to the EU, because if US dollars can’t cut it, then Euros might be the ultimate winner. (Or a great shorting opportunity of Jean-Claude Trichet falls on his sword.) And in spite of world jitters regarding the downgrade of the US Treasury from “AAA” to AA+,” the final option is the same as the first: invest in the new (very old) “gold” of US Treasury Bonds, which still remains the world’s deepest market and ultimate safe haven and so, perhaps, is the ultimate “fool’s gold.”
Disclaimer: Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.
All Charts Courtesy of StockCharts.com.