5 Assets for a Global Banking Crisis?

08/17/2011 0 comments

"Don’t interpret last week’s volatility as merely a reaction to S&P’s downgrade of US Treasury debt, according to Doubleline founder and chief investment officer Jeffrey Gundlach.  Investors are actually fearful of a global banking crisis, he said, because many countries face a perilous choice – defaulting on their sovereign debt or inflating their way out of trouble." Reported in the following article

Gundlach - 'The Cusp of a Global Banking Panic' advisorperspectives.com

 

So if there is another Lehman like default from Euro zone, what are the similar and different positions one can take in a retirement investing portfolio such as in their 401k or IRA accounts?

Similar to 2008 Lehman crisis, the following asset will do well:
  • Treasury bonds (TLT) (IEF): it is no different this time,  even after S&P's downgrade of the U.S. debt rating, the U.S. treasuries remain the world's most liquid safe haven. 
Unlike 2008, the following assets will be resilient
  • Gold (GLD): with the U.S. dollar's rapid devaluation as well as stimulus policies adopted by governments around the world, gold remains the only one asset that people can trust as a hard currency.
  • Other commodities (DBC): though its underlying fundamental is not as strong as gold, commodities will be a good hedge for both sides: if the crisis does not happen, the demand of commodities from emerging markets and other economies will be strong. If the crisis does happen, the U.S. policy to devalue the dollar through more stimulus or other tools will still make commodities relatively strong relative to U.S. dollars. 
  • U.S. total bonds (AGG) (BND): in general, US coporate balance sheets are exceptionally strong and coupled with government treasury bonds' strength, this asset class will withstand the crisis better this time. 
In case the European governments manage to kick the can further down the road this time, U.S. Real Estate Investment Trusts (REITs) (IYR) (VNQ) could be a good asset class to invest this time: it enables one's portfolio to have risk asset exposure. Taking advantage of exceptionally low interest rates, these REIT companies have much better balance sheets and enjoy relatively cash flow. If the crisis does happen, REITs will not suffer as badly as this time (considering their valuation  and fundamentals) and they are thus a good defensive asset to hedge. However, we should caution that in a severe fallout, REITs, like stocks, can be subject to big loss.

Check out MyPlanIQ Diversified Core Allocation ETF Plan and Six Core Asset ETFs. See how the portoflios are compared with other tactical asset allocation ETFs or mutual funds in our latest newsletter or through this comparison link.

Symbols: TLT, DBC, GLD, IYR, VNQ, AGG, BND, GTAA, GDAFX, Retirement Investing, ETFs



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