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Tags: virus | fear | investors | bonds

Bonds Are Still Safest Haven for Investors to Ride Out Volatility

Bonds Are Still Safest Haven for Investors to Ride Out Volatility
(Dana Rothstein/Dreamstime)

By    |   Monday, 29 June 2020 09:34 AM

Health and Human Services Secretary Alex Azar warned on Sunday that time was running out for the U.S. to curb the spread of coronavirus as cases rise across the country, particularly in the American South and West, CNBC reported

Now, it has always been fear of the virus, not the virus itself, that has done most economic damage. Fear of the virus can either be fear of consumers who change their behavior, or fear from officials who order changes in behavior.

And yes, one could say that fear came to Dallas, over the weekend with Vice President Mike Pence pledging more testing for Texas and urging the State’s residents to wear masks amid a rapid increase in coronavirus cases, which was, in my opinion at least, an extremely important event.

Pence mentioned it several times. “Wearing a mask is just a good idea. And it will, we know from experience, slow the spread of the coronavirus.”

Pence, the Governor of Texas Greg Abbott, the Department of Housing and Urban Development or HUD Secretary Dr. Benjamin S. Carson, Senator John Cornyn, Senator for Texas and Senate Majority Whip and Ambassador-at-Large Dr. Deborah Birx, the White House coronavirus coordinator, were, among others, all wearing their masks when they entered the press briefing but removed them to speak, CBSN Dallas-Ft. Worth reported.

Lockdown restrictions in Texas have been tightened. California and Florida and others have also tighten regulations, the New York Times reported.

It’s still interesting to note that equity markets were not terribly happy about the state of affairs related to the coronavirus.

However, fear is not pushing any part of the United States into a full lockdown at the moment, which, of course, “mutes” financial markets’ reactions. Consumers have the ability to spend with, for example, the savings they have acquired during lockdowns and there is more attention being given as to the next fiscal stimulus. By the way, the fifth, for those people who are still counting.

The virus does continue to create problems for economists with academic analyses pointing out that inflation is now being “underreported” because of a failure to collect price date properly.

We know that large parts of the inflation statistics are just being made up at the moment and no one is suggesting that this is anything other than a disinflation episode, it’s just that inflation is not quite as low as the headline numbers are reporting. It just emphasizes that there is no point being too precise with economic data these days. Precision is just not there.

Meanwhile, on the other side of the world in Japan, which is by the way the third economy in the world after the U.S. and China, just released data show that retail trade declined by 12.3 percent year-on-year in May, after a revised 13.9 percent fall in April and compared with market consensus of an 11.6 percent fall. This was the third straight month of a drop in retail trade. It’s clear that demand in Japan continues being hit by the prolonged impact of the COVID-19 crisis.

This data out of Japan may be a good remainder for investors that the negative economic impact of the coronavirus crisis will stay with the developed economies longer than many think or hope today.

That said, investors who are considering, voluntarily or obliged, to make median to long term investments will probably be better served by taking a wait-and-see attitude and wait for financially better conditions.

For the investor of course, that could be created by, for example, some kind of a black swan event that will happen, no doubt about that, at some time in the future.

The negative economic consequences of the coronavirus could provoke that, notwithstanding there are also still other causes that could provoke tremendous shocks that are somewhere out there. The coronavirus has recalled us that unforeseen events are also part of the daily reality.

Anyway, serious investors, not gamblers, should always have solid and trustworthy cash-equivalent instruments that are instantly operational all over the world like, for example, U.S. Treasuries at hand, especially now these days and for some time to come, where uncertainty dominates the complete financial environment.  

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investors who are considering to make median to long term investments will probably be better served by taking a wait-and-see attitude and wait for financially better conditions.
virus, fear, investors, bonds
Monday, 29 June 2020 09:34 AM
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