On the flip side of the ledger, “risk-on” U.S. assets need some insurance against a policy mistake by the Fed (e.g.,raising rates too soon, failing to communicate intentions where credibility is lost, etc.). Not only did the trade deficit soar and consumer confidence drop dramatically in January, but corporate earnings and GDP guidance are both being revised downward. This means investors should buy the long treasury bond dips for protection, relative value and price gain potential. Consider buying a fund like iShares 10-20 Treasury (TLH) on this reversion to its 50-day MA.
Finally, there’s reason to believe that, historically speaking, it makes sense to allocate a portion of one’s risk assets to places where valuations are lower than the U.S. It is true that European equities may struggle to make progress as long as the potential for an ugly divorce between Greece and the euro-zone exists. That said, if a path forward buys time for Greece and, by extension, Spain and Italy, export superstars in the euro-zone should profit immensely from the decimated regional currency. Many of my clients hold iShares Currency Hedged Germany (HEWG) or WisdomTree International Currency Hedged Equity (HEDJ) to mitigate the fear of additional euro depreciation. Others might want the other side of that “bet” by picking up iShares Germany (EWG). After all, the dollar could fall against the euro if the Fed pushes off interest rate hikes into 2016.
