Until the global investment community gives up on the notion that any stimulus is good stimulus – that any financial engineering designed to inspire risk taking will reward risk takers – expect the uptrends in respective stock markets to continue moving higher. I prefer removing the currency aspect from the equation with funds like iShares Currency Hedged Germany (HEWG), WisdomTree International (Europe) Hedged Equity (HEDJ) and/or Deutsche X-trackers MSCI AC Asia Pacific ex Japan Hedged Equity ETF (DBAP).
Yet I am equally convinced of the necessity to hedge against a monumental shift in central bank sentiment. There’s a reason that negative yields on sovereign bonds in Europe — Netherlands, Austria, Germany, Finland and Switzerland are becoming increasingly common. For one thing, negative yields can become even more negative, extending price gains for buyers of the debt. For another, there’s a remarkable demand for safe storage. Government bonds, even with negative yields, might be considered safer than cash deposits, particularly when those cash deposits are substantial. (Think Cyprus!)
I am by no means recommending that an investor rush out to purchase negative -yielding sovereign debt; rather, I anticipate the U.S. bond rally to stay the course on relative value. If the U.S. 10-year yields 1.82%, but German 10-year’s offer 0.3% and the Swiss 10-year offers a negative yield, is there any reason to suspect that a fund like iShares 10-20 Year Treasury (TLH) will fail to find buyers? Consider incremental purchases of an exchange-traded fund like TLH when it revisits its 50-day moving average.