Flights to Safety: Treasuries, Gold, Nasdaq (?) and Bitcoin (?)

Why I am writing this article

With the outbreak of the ATM crisis back in early March and the continuous Sturm und Drang of a soon to materialize (maybe) recession, many investors decided to head for the hills of safe haven investments…flight to safety. Except for Treasuries, most of the options above appear to be anything but safe havens. I thought it might be helpful to offer you a few counterpoints to the non-treasury listed above.

Gold… doesn’t sparkle

When the Silicon Valley Bank (OTC:SIVBQ) crisis emerged in March, gold was trading at about the same price it was trading at 11 years ago, $1,818.00 per ounce (March 7, 2023). By April 12, when flight-to-safety buyers poured in and the COMEX price hit $2,055.00. It was trading around $2000.00 when I wrote this post. If you had moved money into gold as a safe haven at the beginning of March, you would have been up around five percent. If you had been persuaded to buy gold in 2012, when things were much scarier after the financial crisis and the Great Recession, and held on because you believed the gloom’s daily preaching that gold was the best investment for hard times, you would be mighty unhappy, as the S&P 500 at its peak had quadrupled over the same time period. You could say I pick my data. This is just one decade of many decades. I will answer that claim with academic work done by Jeremy Siegel in his book Stocks for the long term. Siegel’s work indicated that one dollar of gold invested back in 1812 would be worth, on an inflation-adjusted basis in 2012, $4.52. Over the same 200 years, one dollar invested in stocks would be worth $704,999.00.

Market infatuation with technology is problematic

I thought we had pretty well broken the fever in last year’s tech rout that saw the Nasdaq Composite fall 38% from its all-time high (16212) in November 2021. It closed at 10089 on October 12, 2022. Today’s close of 12142 is back 20%, but is still down 25% from the 2021 high. Since the banking scare, the index has risen from 11138 back to 12142 – all, I believe, in reaction to the recession that is now really (perhaps really) coming due to a SVB-induced tightening of credit. The rationale: technology companies are so profitable that they don’t need to borrow to grow. They are bulletproof. Set them and forget them. What you pay doesn’t matter… buy them! Ask Cathie Wood how that approach has worked.

The demise of the “Nifty Fifty” and the Covid playbook

The terms “Nifty Fifty” and the Covid playbook essentially describe the tactics designed to outperform investors in difficult economic times. Everyone knows bad times are ahead (right?), but they have to be in the market, so they shed their financially sensitive names and increase their holdings of reliable, high-quality growth stocks. The release includes small companies with leverage and companies in need of financing. This happened in the early 70s with the “Nifties” and struck again when Covid struck. Our current ATM crisis has brought a new wave. Since March 9, the Nasdaq Composite Index has risen from 11,138 to 12,142, up 9%. In the same period, the Russell 2000 small-cap index has fallen over 13% from its peak on March 2, 2023.

An example

META ($238.56), the stock formerly known as Facebook, reported the following results as analyzed in this excerpt from CNBC’s website:

IMPORTANT POINTS

• Revenues at Facebook’s parent shrank for three consecutive quarters before increasing slightly in the latest period, but the stock is soaring.
• Investors have mostly been focused on the company’s dramatic cost-cutting efforts after years of unrestrained expansion.
• Meta CFO Susan Li said on Wednesday’s earnings call that the company’s Reels product is “on track to be revenue neutral by the end of the year, early next year.”

With results largely achieved by “dramatic cost-cutting efforts after years of unfettered expansion,” the stock closed up 15%.

On the other hand, Caterpillar (CAT – closed April 27 at $214.33, -$1.86) is crushing earnings, real income and revenue growth, but the stock isn’t budging (in fact, it was down). According to Barron’s… “Economic anxiety is too high.”

I just shake my head.

To put the cherry on this sun, Bitcoin… fly-to-safety champion!

Let me start by saying that I don’t now and have never understood bitcoin. The only reasons I can think of for someone to buy bitcoin is because they think someone else will take it off their hands at a later date at a higher price (bigger idiot theory) or they need to do something malicious with their money . But in these uncertain times, because bitcoin is so secretive and so supposedly secure, it seems that some people may move their not-so-secure FDIC-insured bank deposits to the safety of a bitcoin or coins. Since March 9, near the beginning of the banking mini-crisis, bitcoin has risen in value from $19,985.00 to over $30,000, up over 50%. As of early Friday morning, March 28th, it is trading for around $29500.00. That would be down from an all-time high of $65,000.00 in November 2021.

Again, I just shake my head.

Parting thoughts

While we wait for the recession that never seems to come, it can be quite frustrating to see the craziness we covered above. Buying and owning today’s also-rans in small-cap, value and financially sensitive names will pay handsomely. Don’t let them scare you off your stocks.

What’s Your opinion?

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