Update on Stocks, Bonds, Gold, Cash

Some claim a combination of stocks, bonds, gold, and cash makes sense because these assets typically don't move in tandem with each other. The same claim has been made for stocks and bonds, but the debacle of 2008-2009 demonstrated that when a credit crisis hits, only government bonds hold up, and only long government bonds actually make money.

So the first observation about this 4 asset combo: Your bonds need to be both U.S treasuries and of long in duration, ideally 20-30 year U.S. Treasuries. Again, only the long bond will give you the outsized gains you want when the asset hits a bull streak. And, again, only government bonds, specifically treasuries, will protect you in a credit crunch. If you don't grasp this, and are in the camp of those who keep telling us the long bond bull market is over and rates are going up any day now, you'll likely not hold long government bonds, in which case you'll likely not benefit from this 4 asset combo. You also need to understand that while the combo can mosey along for quite a while going nowhere in particular - as has been the case most of this year with most assets more or less basically been range-bound - when one hits a hot streak it will likely gain mightily. This year we're still waiting for any of the asset classes to catch fire.

So with all four asset classes mostly biding their time this year, nothing's really going anywhere, although there's been some stirring lately:

Gold has broken below long-standing support, reinforcing its cyclical bear market action, possibly a harbinger of more losses coming. But wait! On Monday gold shot up $14, followed by another - albeit more modest gain - yesterday. Will that negate gold breaking below support? We can't really know, but the most likely scenario would be no, unless we find additional and substantial gains in the coming week. Otherwise, the spike upward will serve simply to excite the rather depressed, morose gold bugs who've been chomping at the bit since the correction in the gold bull market began in September 2011.

Bonds (the long treasury to be exact) have also lately perked up. After being last year's star, and hitting a high at the end of January this year, they took a needed rest and fell back quite a bit. But the last couple of weeks do seem to indicate that they may be ready to take center stage again. And if stock don't shake off their summer doldrums in the fall, the long bond may repeat its 2014 position as top billing on the market marquee. Based on the latest action, bonds might be the more likely candidate for a stellar breakout before the year is out.

Stocks, while they've gyrated up and down, so far have told us nothing of interest. They've hit all-time highs (barely) but immediately dropped back into their 2015 range, even dipping close to 17,000,  a break below which would likely engender more serious losses. Not that stocks couldn't surprise everyone in the fall, but a betting man would need to come up with some reasons why he might want to extend his credit to buying stocks in the coming months to make something of this lackluster 2015.

As for cash, it's stuck where it's been since 2008, when the Fed lowered rates to essentially zero and kept them there for now going on seven long year. Seven years! As a result, cash has served as an extended drag on this four asset combo, and until the Fed begins raising its short rates, will likely continue to do so.

So with that update, we remind ourselves that if the portfolio's balanced the way we want, we'd do better to read a good book rather than stare at our screen all day waiting for something of interest to break the long, dry spell of inaction that's marked 2015 to date.




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