atans1

Flight to safety: What to leh?

In Uncategorized on 08/06/2010 at 5:31 am

US treasuries are almost at zero yield because of the flight to safety — 2008 redux ? So time to go into equities or liquidate equities and go into bonds.

It is also sobering that a vast majority of economists and market strategists were forecasting a different chain of events. Treasury yields were universally expected to be rising, not falling, as the United States recovered from a deep recession. The domestic economy is, in fact, growing, and corporate profits have been rising, but the European crisis has overturned many expectations.

investment-grade bonds are very richly priced in comparison with stocks, several analysts said. Mr. Knapp says he expects that the S.& P. 500 will rise to 1,210 by the end of the year, or 13.6 percent from its current 1,064.88, and that the chances for strong longer-term stock returns are favorable. (The outlook for Treasuries is not positive, he said.)

… said that there is a very “strong correlation” between low Treasury yields and subsequent strong economic growth. And there is a weaker but still significant connection between low yields and high stock returns.

In short, at current prices, it would appear that there is some reason for long-term optimism for stock investors.

For the short run, alas, more volatility is probably in order. “The problems in Europe, for one, aren’t going away any time soon,” Mr. Knapp said.

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