AT ANY GIVEN MOMENT, my first inclination isn’t to take a risk, but to reduce it. And for those readers who earn and spend U.S. dollars, one of the most important and least considered risks is that of a relative decline in the value of U.S. assets, from bonds to greenbacks.
So at a time in which most people are just starting to think about diversification away from the big domestic stocks, my sights are focused on a few more exotic locales, since it’s quite likely that the next big bull market will occur somewhere outside the U.S.
I’m not the only one making the call. In recent days, both Credit Suisse First Boston and Merrill Lynch have upped their allocations of non-U.S. equities, and although the pundits have a habitual knack for inaccuracy, I do believe this is one of the few macro calls worth heeding. A few weeks back we discussed some general opportunities in foreign and emerging markets. This time around, we’ll focus primarily on fixed income.
Because they are backed by the “full faith and credit” of the U.S. government, U.S. bonds are considered the world standard. Because they’re the most liquid and actively traded bonds in the world, U.S. Treasurys are the most often quoted barometer of interest rates. When most people refer to the bond market, they’re referring to the U.S. 30-year bond and, more recently, the 10-year note. (more…)