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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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buz hill

Dec. 1, 2012, 12:34 a.m.

In spite of the oft stated opinion that “the money does not simply disappear” one notes that in the case of sovereign defaults money does in fact vanish.

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