Outside the Box

Popular Delusions: The bull case for safe havens

November 30, 2012

A month ago in Outside the Box, Dylan Grice made the case for the need for safe havens, due to expansive monetary policy. But what is a safe haven anymore?

In today’s piece, a follow-up to last month’s, Dylan gives us a very good rundown on the historical relationship between equities and government bonds, in order to point out the very atypical current negative correlation between them. He then observes that

… what constitutes the ‘safe haven’ changes over time. It’s important to remember not only that government bonds aren’t always the market’s safe haven, but that that there will always be a safe haven somewhere. For all the headlines about the billions wiped off stock market values during market routs, that money had to go somewhere. It doesn’t just disappear. It will go into whatever the safe haven is, which in normal times will be bonds. But what happens when government bonds themselves fall victim to the primary ills of the day?

So where are the safe havens when treasuries underperform? Read on!

By the way, I plan to be in London on January 15 to attend a conference sponsored by Societe Generale. My good friends Dylan Grice and Albert Edwards will be speaking, and a few of us will slip away for dinner.

I am sending this OTB from the Lindbergh Terminal of the Minneapolis–St. Paul Airport, on my way back from Bismarck, ND. I have now been to 49 states, with only South Dakota to go. The Bakken oil field is amazing and the helicopter tour was eye-opening. I am going to write about it this weekend as part of looking at the larger picture of energy and change. 

It is not just about drilling and finding more oil. The changes here connect to fingers of instability and money all over the world – what happens in the Bakken and other places like it will not stay in the Bakken. I am glad I have a few days to process what I saw, before I write. I really learned a great deal and hope to pass on a few insights, and maybe a story or two.

Having my son Chad with me was really special. He has not been my kid who wanted to just jump on planes and go, but he really did like Bismarck. Dave Hoekstra, the president of BNC Bank in Bismarck, met Chad yesterday morning and grabbed him and took him on a tour of the town, even introducing him to potential employers while I was out touring the oil patch. What a nice thing to do. But everyone I met was gracious and helpful. Quite the friendly place. If cold. It was 9 degrees when we visited the oil rig and the wind chill took it down to minus 10-15. Can you say brutal? Even the locals were cold. Though they pointed out that it’s not officially winter yet.

Assuming American Airlines gets me to Dallas on time (which they seem to be able to do just fine; you’ve got to love it), I will see Andrea Bocelli tonight. I bought tickets the first hour they were offered and have been waiting a long time for this.

I now hit the send button from my Swiss Army knife, aka my iPad. Have a great weekend.

Your ready to be warmer analyst,

John Mauldin, Editor
Outside the Box

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Popular Delusions

The bull case for safe havens

Government securities are the default safe haven in times of heightened risk aversion. But what happens when Government finances are the cause of the tension? Where are the safe havens then? We offer some thoughts inside .… and more!

In a marked softening of the IMF’s former tone, its chief economist Olivier Blanchard, speaking in Tokyo,…

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Ty Thompson

Dec. 10, 2012, 10:27 a.m.

@buz hill - It’s already disappeared, that’s what is going to make it so easy. Most real money has been replaced with derivative contracts years ago, much like the situation with gold and leasing.

Gerald Ferguson

Dec. 7, 2012, 6:19 p.m.

With reference to todays’ article 12/7/12 on pensions, I want to recommend “THE BETRAYAL of the AMERICAN DREAM” by Bartlett and Steele. Chapter 6, The End of Retirement. An eye opener for me.

Dallas Kennedy

Dec. 5, 2012, 3:24 p.m.

The point is: sovereign debt currently viewed as “safe” will soon lose that status. Replacements: gold and high-quality, income-generating stocks. Very interesting piece that shows how historically shallow and short-sighted the current conventional wisdom is—as it often is.

Charlie Patterson

Dec. 4, 2012, 9:47 a.m.

Sorry, but I didn’t follow this at all.  After 10 years of reading Mauldin and friends, this may be the first time that I didn’t get the point at all.


Dec. 2, 2012, 9:06 a.m.

“For all the headlines about the billions wiped off stock market values during market routs, that money had to go somewhere. It doesn’t just disappear.”  Yes, actually that money does disappear.  For every dollar that escapes by selling their shares, another investor is on the other side of that transaction buying.  The net difference in value from a stock’s high to it’s low, in a declining market, is lost.  It does disappear.  In a rising market, wealth is created.

Peter Wynn Williams

Dec. 2, 2012, 3:47 a.m.

Disappointing article from a respected team.“Buy what we’re selling.” What a surprise.

Nedland Williams

Dec. 1, 2012, 3:22 p.m.

Mr. Grice’s premise is wrong when he says “that money had to go somewhere”.

An individual can take money out of one market and put it somewhere else, but money does not come out of the market.  For every seller there must be a buyer.  The total value of any market fluctuates in a constant attempt to find equilibrium between buyers and sellers.  If this were not true, how could the stock market fall 200 points on overnight news, without a single share being traded?

The valuation in a second market [or safe haven] may well go up, as some sellers buy into that alternative.  However, a $100 billion loss in the stock market does not portend a $100 billion rise in another market, since most of the valuation losses occur in the accounts of those who have taken no action at all.


Dec. 1, 2012, 2:24 p.m.

thank you for the intristing e-mail .i have to say you are right but i am littel confuese because if you really was in GR for even few houres ..you should make a phoone call (never for some think out from the intres )i have respect for my self first so this make me to have respect for others but you see the person i saw in video and i have e-mail (is not the same who say was in GR (maybe you are cunfuese too but (this risk on -off) have a reason to use in special’’ periptosy ‘‘after this i am sure the person with Mauldin potential is not the same i have in e-mail (dont worry i will continue to read your analysis ) but i am sure you are other person ..
SO again thank you
the world is not Quit too ..we have to be safe ..

Richard Fago

Dec. 1, 2012, 12:18 p.m.

This time “It is different.” Since 2008 this has not been your “normal” business cycle, where first you go down and then you come back up and everything is hunky dory. We are being confronted by dangerous leaders, starting with Obama. You can add another seven or eight with a little thought. The next four years are going to be hell on earth for ALL American citizens, even those who voted for the man. Europe is certainly no safe haven and it will only get far worse before it gets any improvement. We can possible survive the leaders, but it is the mindset of the masses, a la Greece, and those who voted for Obama, et al, who we need to worry about. Until they accept capitalism, success, failure, personal responsibility, the imperative of freedom and liberty, less government power and control over its citizens, etc, etc, we are all relegated to a sub par life and just “getting by.”

Obama is THE GREAT DEMENTOR,  (from the Harry Potter movies),who sucks out the spirit, lifeblood and motivation from the citizens. Other countries suffer from the same type of leaders, ie. ~ Chavez, Castro, et al.

David Oldham

Dec. 1, 2012, 11:44 a.m.

“Assuming American Airlines gets me to Dallas on time (which they seem to be able to do just fine; you’ve got to love it), I will see Andrea Bocelli tonight. I bought tickets the first hour they were offered and have been waiting a long time for this”.

I hope you made the concert John. These guys at top of their profession bring tears to my eyes. Just wish my right brain could compare in the business of trading markets.


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