Tags: Kahneman | Treasurys | safe | haven

Nobel Laureate Kahneman: ‘Treasurys Just Feel Safe’

By    |   Tuesday, 27 Dec 2011 07:36 AM

To Nobel laureate Daniel Kahneman, it’s no great mystery why Treasury bonds rallied strongly this year, despite the fact that Standard & Poor’s downgraded the federal government’s credit rating in August.

“Treasurys just feel safe,” the emeritus psychology professor at Princeton University, who laid the foundation for behavioral economics, tells The New York Times.

“When you’re worried, you go to the safe thing. It’s quite a normal reaction.”

That safe haven effect has propelled the Barclays U.S. Treasury bond index to a gain of 8.87 percent so far this year through Monday. That compares to a paltry 0.6 percent increase for the Standard & Poor’s 500 Index.

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Kahneman’s intuition is that the economic picture will remain bleak next year. But that doesn’t mean you should stay away from financial markets, he says.

“I’m not really sure that the situation is very different from what it usually is. The same advice about prudence that would carry you in other years would carry you in next year.”

Kahneman’s biggest worry is the impact of the financial woes of recent years on the psyches of our youth. “That’s a profound change,” he says. “Where that will go, what shape that will take I cannot predict.”

As for next year, the S&P 500 should rise to 1,400, up 11 percent from Friday’s close, according to the average forecasts of investment gurus surveyed by Standard & Poor’s, The Associated Press reports.


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To Nobel laureate Daniel Kahneman, it s no great mystery why Treasury bonds rallied strongly this year, despite the fact that Standard Poor s downgraded the federal government s credit rating in August. Treasurys just feel safe, the emeritus psychology professor at...
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Tuesday, 27 Dec 2011 07:36 AM
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