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Strategies & Market Trends : A.I.M Users Group Bulletin Board

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From: OldAIMGuy	8/11/2011 10:58:44 AM
	2 Recommendations of 18928

There's one aspect of this that from a Human Behavior point of view I find interesting. We've all heard the term "Flight to Quality." This has historically meant that investors sell their more risky investments and buy into less risky ones. It also has usually meant people selling equities and buying government paper. Well, this time isn't any different. The Vanguard LT Bond Fund has risen in price/share by almost 8% since the beginning of July. The I-Shares intermediate bond fund has risen almost 6%. The I-Shares TIPS bond fund over 4% and their 20 Year Bond Fund a whopping 15+%! So, there's a lot of buying pressure on these funds. Now, if your government's debt had just been "downgraded" is it still "quality?" Why would people be selling corporate bonds and stocks to sink more money into the rathole of government debt instruments - just when they'd been downgraded in quality and were selling at a 4% to 15% premium over just a month ago? It seems to me that the corporate world has shown far greater fiduciary responsibility overall than has essentially any government of which I can think. So, are people behaving rationally this time? Are they really gaining 'quality' and lessening 'risk' this time? All I know is that I've been busy selling some of the various bond funds mentioned above (Sell to the Greedy) and also very busy buying shares of essentially any and all our equity ETFs as prices have been falling (Buy from the Scared). I'm very happy to have been able to provide some liquidity to those interested in selling their equity funds. I'm also very happy to have been able to provide those interested in accumulating government bond funds some of our inventory. See, Equity Warehouses do provide a valuable service! Especially when Human Behavior has been acting as it has. Best regards, Tom

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