When stocks and bonds falter together, investors look for alternatives – 05/15/2022 10:14 a.m.


At the New York Stock Exchange, April 25, 2022 (GETTY IMAGES NORTH AMERICA / SPENCER PLATT)

Worst Beginning of 1939 for Stocks on Wall Street, and an Unprecedented Fall in Bonds Since 1842: To escape the stagnation of stellar investing, investors look for alternatives.

Ross Mayfield, of Baird explains: “For the first time in decades, investors are facing real inflationary pressures and an aggressive US central bank (Fed), bent on tightening its monetary policy to bring prices down to the ground.

He continued, “This led to a decrease in the impact on both stocks and bonds.”

As prices rise, bond prices fall (the two move in opposite directions) and no longer play the role of a safe haven when stocks are swinging.

The war in Ukraine, sanctions against Russia, and lockdowns in China have heightened market anxiety, which is no longer certain. “It’s a very challenging environment,” said Anwitti Bahuguna, head of all-asset strategy at Columbia Threadneedle Investments.

“It’s an enigma in that we don’t yet have well-defined benchmarks on persistent inflation and global growth,” notes Chagir Mandy, portfolio manager at Tailor AM.

New York Stock Exchange traders, May 6, 2022 (GETTY IMAGES NORTH AMERICA / SPENCER PLATT)

New York Stock Exchange traders, May 6, 2022 (GETTY IMAGES NORTH AMERICA / SPENCER PLATT)

“I am running away from the market. (…) I think this crash will be worse than it was in 2008,” said a small carrier, contacted on social network Reddit and who did not wish to be named. “For now, I am looking to invest in cash and precious metals.”

Greg McBride, chief analyst at Bankrate, asserts that “a lot of investment goes into liquidity,” where investors sell their assets to hold cash only, even if, unlike the 2008 financial crisis, inflation causes capital to mechanically lose value.

– Art and materials –

Another destination at the moment, he says, is money market funds, financial products that bring in little but are considered very safe and relatively protected from stock market turmoil.

Along the same lines, term deposits secured by banks or savings accounts. It has been ostracized in recent years by very low interest rates, often less than 0.50% per annum, but it has become attractive again.

After selling his bonds with a 9% loss as a result, the little Reddit holder found a two-year forward account at 2.65%.

Anwiti Bahuguna’s team says it has seen a decline in bonds coming and has reorientated itself towards commodities, which are now easily accessible, via funds, to both institutional and retail investors.

From precious metals to energy and agricultural raw materials, commodities are the anti-inflation weapon par excellence.

Index funds (also called ETFs), which track the prices of these materials or the prices of companies in their sector, have posted shameless gains since the beginning of the year, often in excess of 30%.

The price of gold melted, and the price of an ounce of gold fell on Friday to $ 1799.31, the lowest level since February (Getty Image North America / Larry Busacca)

The price of gold melted, and the price of an ounce of gold fell on Friday to $ 1799.31, the lowest level since February (Getty Image North America / Larry Busacca)

But even this divine investment is showing signs of running out of steam. The repercussions of recently reached record levels, as well as the end of cheap credit, in addition to the specter of an economic slowdown that would weigh on demand for raw materials.

Coffee, copper, nickel or silver are all folding their sails, after a dazzling start to the year, like gold, which some hastily presented as a shield against inflation, just like bitcoin, today in turmoil.

In addition to raw materials, “for those who want to make a transition” is more straightforward than just brushing aside, “For longer, there’s real estate.”

Since 2019, before the pandemic, the median home price has reached 39% in the United States, according to the National Association of Realtors (NAR) and continues to rise.

There are still alternative investments, such as collecting cards, from which Gregg Love, a small saver, bought a plot of land on the Rally site, and which co-owns a valuable object among thousands of investors.

In two years, he has increased his capital by 30% and believes that he can do a better job.

This principle of fractional ownership energizes the entire collecting market, as well as “envisioning art as a means of hedge against inflation,” explains Juan Robledo Palop, founder of Zeit Contemporary Art. The two factors have “created a new generation of collectors whose number would have been unimaginable five years ago”.

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