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October 13, 2010 at 08:54 AM
When the first U.S private equity firm to go public—The Blackstone Group LP (BX)—did so in 2007, I felt that tug: “These are smart investors. If they are willing to share equity with the public, monetize their equity—and spread the risk to investors; is it an equity market top?”
I am getting that feeling again when it comes to bond yields, the barrage of headlines about gold hitting new highs and the rise of equity indexes. Almost always, there is opportunity elsewhere when one asset class feels top heavy, but I am wondering what advisors feel is the prudent route for diversifying assets in this environment.
Treasury, hold my money, please
Will the 10-year U.S. Treasury hit a record low sometime soon? I have no crystal ball. But as a market practitioner and observer for the past 30 years, I have noticed a few things.
Typically, U.S. Treasury securities get bid up in price and the yields fall when folks are expecting trouble, as U.S. Treasury securities are still the safest haven around. But the quantitative easing and other “accommodation” programs that the Federal Reserve discussed in the minutes of its Sept. Federal Open Market Committee (FOMC) meeting (released Tuesday), are intended to impact yields, as well. What does it mean for advisors and their clients when the yield on ten-year Treasury flirts with new record-low yields just as some equity indexes climb toward post-crash highs?
Gold?
Gold, representing commodities, is considered an inflation hedge and something of a haven when equities crack, but it is extremely volatile, as we all know. It is being included as an asset class in many portfolios as a diversifier. At record prices, when does a bubble distortion in the price of gold
nullify its value as a diversifier and inflation hedge?
