This week our friend Marc Garrigasait published (which incidentally has just launched a new fund called Panda Agriculture & Water) , this article Cotizalia which includes the Interactive Chart I link at the end , although somewhat outdated and inaccurate , it very revealing of how is the courtyard of the global solvency .
Some voices like Bill Miller begin to dare to say what I have been warning for years in articles like " The Flight to Quality of Solvency " : that the risk has seized what had traditionally been considered the Sancta Sanctorum of the safety , or fixed income countries and most developed companies . And that includes , of course, all products guaranteed by the bank ( as companies with balance sheets that are broken ) , from the deposits to the debt of the entity in any form or structured more or less Machiavellian .
That is, the rules have changed and what was safe, now risk a lot. Because remember that the risk of investing in an asset of a bond issuer is insolvent permanent loss , unrecoverable . And developed economies are sitting on a bubble of public and private debt is a fearsome Debt Bomb . Whoever says that is a policy spread unfounded fear , is a liar, a naive, lazy, mediocre , a daredevil or a cocktail , explosive course , several of these ingredients.
Unequivocally determine where is the Solvency in the New Normal now is of vital importance , since less inclined heritage to the high volatility of the stock market should be supported in fixed investments , but whose creditworthiness is undoubted . Otherwise, the more fearful and cautious investors who choose to avoid the oscillations of actions by placing their money in fixed-income securities and other products "guaranteed" , would actually putting your money at risk of permanent loss , or unrecoverable losses . Just ask the Argentine bondholders or Greeks , who never recovered or recover their losses , unlike stockbrokers in those same countries .
Does this mean that only find safety in equities ? No. equities , per se , does not determine its intrinsic risk . It may be safe or risky , depending on the success we have at the time of analyzing the actual value of the shares purchased , different pricing . And to make sure our returns outperform the market in the long term, we must invest in the best fund managers equity investment in the world, as we have repeated ad nauseam on various items.
Only then can we consider investing in equities as safe, ie no risk to suffer permanent losses , only temporary. This phenomenon forces us to take short-term losses potential, called volatility , and has nothing to do with the risk - of - final losses , which is what should concern you more every investor . Therefore, even assuming potential losses in the short term , equities is more than ever a refuge to consider to preserve our heritage .
However, not all investors or portfolios entirely necessarily have to be willing to suffer the volatilities own equities. Because there is still , thankfully , a part of the planet with debt issuers solvent, ie safe . And these are not other so-called emerging countries and companies , whose volatility is today riding the traditional fixed the old and the bag. In other words, we must also assume potential short-term losses , but more moderate than equities, and recoverable in periods somewhat shorter .
Why solvent is emerging debt that developed ? Well obviously because its debt is lower and its economic growth is greater . So their balance sheets , whether countries or companies are healthiest . And do not forget that a lower current indebtedness , with increasing economic figures also imply about future growth and therefore future solvency , even higher (up to abuse and mismanagement of their governments or managers lead them to our own situation , unfortunately but even today with a tour ahead enviable and very profitable ) .
Just as , conversely , an issue more debt , for example in Spain , condemning our future generations to recession and tax suffocation . In other words , that the vicious circle in which they are mired European peripheral economies , and to a lesser extent other developed economies , it is instead a virtuous circle in an emerging economy and growing , be it a country or a company. And those assets emerging fixed income solvents , despite falling prices possible we may suffer in the short term , are the main shelter ( along with a good portfolio bag) that investors should look for in these times.
Take perfect example what is happening in this 2013 : So far this year the U.S. bond funds have lost ( by reducing expectations accommodative policy -QE - American ) approximately between 1% and 2 % . And the emerging fixed income funds have fallen approximately between 1.5 % and 3 % in the same period. However, the Solvency of U.S. bonds is much lower than that of emerging fixed income , not to mention the political risk posed by a decision of the Fed that are absolutely determinants of price traded U.S. bonds . In contrast, emerging debt (provided you choose properly managed funds ) solvency is its main value .
It is true that in periods like the current volatility and it is higher in 2013 are down more, but the short and medium term, we prefer to give all our money to all creditworthy issuers , despite price fluctuations suffer short term. And we must remember that today coupons still emerging debt paid are higher than developed, so that the past performance and expected future is much greater than in the saturated bond developed countries.
Obviously also other assets can be a true refuge , such as real estate investments also growing markets ( emerging ) , or more speculative physical precious metals ( eye promises the role of metals , which starts trading with discount to the physical metal ... but that deserves another article) . But beyond this, we will enter recklessly in Apache territory and balls bombastic debt issuers , which should soon be ahead of the estates of those who do not evolve and take the leap towards Solvency in this New Normal.
Only the desperate search for the Solvency North should be our these times we face . And who , fleeing the volatility and potential short-term losses , feels recklessly in deposits and bonds developed , will actually risk losing forever a good part of his fortune .
I leave you now with the promised graphic Juguetead Marc's article with him and notice the evolution of public and private debt of individual countries . And keep in mind that the figures for Greece are obviously wrong , and those of Spain are not updated with the bailout of the banks, and we did reach 100 % of GDP and rising ... At first glance no one would escape our money will be invested in debt safer countries closer to the left axis and bottom , which essentially coincide with calls emerging economies . I recommend to watch out especially in the evolution and current situation in Russia :