Tags: safety | trade | investors | treasurys

Why Seek a Safety Trade and Is It Broken? Continued Volatility in Treasurys

By    |   Monday, 04 May 2015 05:48 AM

In today’s first clip, David Seaburg of Cowen and Stacey Gilbert of Susquehanna spoke with Mandy Drury of CNBC late Friday about how investors who are looking for greater safety in their portfolios should respond to the poor performance of utilities, the traditional haven for such investors.

Drury asked, “If you’re worried about stocks, where do you hide?”

Seaburg responded that the safety trade isn’t broken, but it’s not working as well as it used to due to dollar issues and the potential for interest rate increases. He recommended small cap stocks, including small-cap financials. This writer would point out that small-cap stocks raise an issue of liquidity for one looking for safety. Gilbert pointed out that options are a cheap source of protection if one is going to buy financials, because they aren’t pricing in much risk. This writer would not that some commentators would say there is little need to seek safety or protection, because the authorities are sponsoring this market and investors benefit from the “Yellen put.”

Lichtenstein sees Treasury trading as unusually volatile in light of expectations of interest rate increases that the market sees as inevitable, even if the Fed doesn’t act next month. He added that, “The volatility that we’ve seen over the last few months now has really become the norm relative to what we had seen in years past, so there’s a lot of interest, a lot of focus, and a lot of attention being drawn to these markets.” He sees “more downside pressure ahead” that no one would want to get in front of. This writer would add that Lichtenstein’s observations are evidence that the Fed may not be able to deliver a neat adjustment to higher rates if it ever does decide to raise them.

Ann alternative view on the issue of portfolio risk was presented by Ken Kamen, President of Mercadien Asset Management. He warned, as Carl Icahn has been doing, that investors who have sought yield in junk bonds are taking more risk than they realize. Kamen defended utility stocks and suggested investors not worry too much about the Fed, that the economy will perform better once “normalized rates” are in place.

(Video for the safety trade clip can be found here; for the Lichtenstein clip; here, Kamen’s remarks on yield are here.)

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Robert-Feinberg
In today’s first clip, David Seaburg of Cowen and Stacey Gilbert of Susquehanna spoke with Mandy Drury of CNBC late Friday about how investors who are looking for greater safety in their portfolios should respond to the poor performance of utilities, the traditional haven for such investors.
safety, trade, investors, treasurys
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2015-48-04
Monday, 04 May 2015 05:48 AM
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