Aaron Task sat in for Matt Nesto for this edition which, of course, addressed the sell-off sparked by the Standard & Poor's negative outlook for U.S. debt.
With markets down nearly 2%, Task was looking at where investors could hide, or even profit, from a negative tape. His answer, alas, was nowhere. As it turns out, bearish mutual funds were the worst performers over the last decade, something of a surprise given the fact that markets have gone though at least two drops of historic proportions during the period. If bear funds can't at least break even during stocks' Lost Generation, we quickly dispensed with the notion that going into a bearish fund would be prudent at all.
I offered the idea that cash may be, as Task put it, "the most contrarian stance." My logic? Local currency is impacted by local inflation rates. Period. When you hear the dollar is getting battered, that means you need to stay at cheaper hotels when you go abroad. Trading foreign currencies as a hedge is a tough proposition for most investors, and the Fed, for all its failings, is likely to be spending a significant amount of time fighting U.S. inflation rates if and when they finish quantitative easing.Read More »from Dos Hombres: Nowhere to Hide After S&P Downgrade