Searching for Safety (Part 1)

“I just want my money to be safe.”

That’s what countless investors have said. But with the Fed buying half of all new Treasury and Mortgage issues, corporate and personal deleveraging, and excess savings coming from the developing world, there seems to be a safety shortage. Indeed, one market analyst has estimated that the global economy is facing a shortage of $1.5 trillion in safe assets, and that this shortage is likely to grow in years ahead.

Increasingly, investors have turned to annuity-like cashflows coming from food companies, drug companies, and utilities in the form of stable and increasing dividends in order to make up for this dearth. But equities—even dividend-paying equities—are not bonds. Going down in the capital structure will have eventual consequences. Ironically, the prices of safe assets—like government bonds and highly-rated corporate debt—have been bid up so high that they are no longer safe.

Like the country singer “looking for love,” investors searching for safety are looking in all the wrong places. Central bankers around the world have repeatedly demonstrated their intention to raise the inflation rate—and central bankers usually get what they want. When inflation and interest rates rise, bond prices will fall.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:34:39+00:00 June 3rd, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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