Thoughts on what's coming in the Investment Markets

by Roger Bourke White Jr., copyright August 2011


Six months ago, even three months ago, the S&P downgrade of US treasuries to AA+ was inconceivable... in its literal meaning. Now it has happened. It can be conceived. This means that the investing market world wide has to deal with a new reality.

This is a discussion of the implications of that new reality. These are implications, not predictions, because I have no crystal ball.

But... one thing is clear: We are living in interesting times in the world of risk-free investing.

The Implications

This seismic change means that the investment playing field will be changing in unpredictable ways for at least a year, probably more like three years.

The kind of change to be looking for is some new style of product emerging in the low-risk, large-volume investment marketplace. It is time to be watching for the next Michael Milken. Milken is iconic because the people who invested in his new concept of the 1980's, what has come to be called the junk bonds concept, did quite well for themselves. They did well, but those who invested in Michael Milken himself made a bundle! (Sadly, he later became the iconic "messenger" for the market downturn that followed widespread acceptance of his hot new idea, and he got "shot" in 1989. Ah well...)

Low-risk, high-volume investors around the world are now going to be looking for the next "gold standard" investment that US treasuries up until now have represented. This gold standard is likely to continue to be US treasures for a while, but investors have been shaken. They will now run "fire drills" where they seriously explore for alternates.

This running of fire drills means that the next time US treasuries shake like they have this month, the investor response will not be, "... Huh?" it will be dramatic action of some sort. And when it happens it will be spooky because it will be the first time something such as this has had to happen.

Far Reaching

This change of thinking is big. And it is far reaching. This is why all sorts of markets have gotten skittish as the inconceivability of this event has worn off. This volatility is likely to continue until the new gold standard emerges and gains trust. This means it could go on for years.

The people most directly shaken by this seismic event are those seeking safe havens, but they won't be the only ones, and they may not be the ones most deeply changed. Look for surprises in many other markets as well.


--The End--