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JakilaTheHun (99.92)

What's the Safety Valve Now? (And Questions on Corporate Bonds)



June 04, 2009 – Comments (2) | RELATED TICKERS: LQD , HYG , UBD.DL2

On top of playing CAPS, I manage a $10 million simulated portfolio on  I've done pretty well over the past six months, earning a 70%+ return mostly by buying into a lot of (what the market perceived to be) medium- and higher- risk securities.  Due to my strategies, however, I always like keeping some level of liquidity so that I can pick up deep bargain stocks if I happen to come across any.  Cash is one way to do that, but given my belief that high inflation was a possibility in the US at some point, I decided to split my liquid "safety net" between cash and gold/silver.  Once gold had its run-up, I began questioning the safety of it, as well, and shifted a lot of my gold cash into oil funds (USO and USL). 

Now that oil is trading over $60/barrel while inventory levels are absurdly high, I've decided that I should move a good deal of my cash out of oil, as well.  Only problem is --- what's the next safety valve?  Treasuries might typically be a safety valve, but I've been of the believe that they were bound to fall for quite awhile.  China bought US treasuries in large quantities, which artificially caused treasuries to become inflated --- I don't want to be in them any time soon.  But what else is there? 

I could go back to gold, but I'm not so sure I'd consider it "safe" any more.  I could go to another commodity, but what commodity hasn't had a significant run-up at this point? 

The only credible option I can think of is corporate bonds.  Unfortunately, I can't buy them directly here on CAPS or on KaChing.  I can only purchase the ETFs.  Anyone have any recommendations for corporate bond ETFs?  And how do they work exactly?  (I admit I have nowhere near as much knowledge on corporate debt as I do on corporate equity).  Do the ETFs pay out significant dividends?  Could the ETFs be considered "safe" by any stretch of the imagination? 

Anyone have any other ideas for "safety valves" so I don't have to have such a huge cash position?  My basic requirement is simply that it be something that is liquid that either (a) has low volatility and shouldn't go down much or (b) is currently priced near a floor.  You might not think of oil and silver as "safety valves", but I'd argue that they were at certain price levels.  Not any more, though.  Doesn't mean they won't go up still --- just that they have some room to fall significantly at the current levels. 

Any thoughts?

2 Comments – Post Your Own

#1) On June 04, 2009 at 1:30 PM, kaskoosek (30.22) wrote:

Safe Equities




Or foreign currencies FXC


but I still like silver and platinum even after the runup.



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#2) On June 04, 2009 at 1:46 PM, JakilaTheHun (99.92) wrote:

Kaskoosek, I like silver and platinum after the run-up, as well, but I don't consider them a "safety position" any more. I still have significant holdings in PAL, SWC, PTM, and SLW.

FXC seems like a good selection.  I guess FXF would fit in there as well.  Guess my only problem with currencies is that I don't feel like I understand the currency markets well enough to feel safe on them. 

I'm not sure I'd consider Phillip Morris safe.  Maybe in another time and era. 

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