An Investment Treasure

U.S. Treasuries remain one of my most favored investment opportunities in the current market environment. The following are the many reasons why.

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Fire And Fury Risk

Global capital markets were stirred on Tuesday afternoon following the assessment that North Korea has produced a miniaturized nuclear warhead. This resulted in an escalation of tensions and rhetoric over the potential outbreak of a military and nuclear conflict between North Korea and the United States. The latest verbal exchange late Tuesday afternoon sent shockwaves through financial markets, as stocks, bonds, and precious metals all swiftly reacted to the headlines. All of this raises the important question – what risks does the potential outbreak of a conflict between North Korea and the United States present for investors?

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The Big 5

All fiscal policy watching market eyes have recently turned to the potential for tax cut legislation being enacted before the end of 2017. It is understood that tax cuts being enacted before the end of the year, particularly if they are retroactive to the start of 2017, would easily fall into the good news with caveats category for U.S. stocks. But what can history tell us about what to expect if we do see tax cuts signed into law before the end of the year?

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Why Stocks Could Soar Into Year End

Risk is a double edge sword. For just as risk can result in unexpected outcomes to the downside, it also provides for surprising moves to the upside. And one such potential development between now and the end of the year represents a potentially meaningful upside risk for the U.S. stock market. Whether this development comes to pass, and the associated impact it might bring remains to be seen, however.

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The Volatility Of Everything

How wonderful would it be if capital markets were absolutely perfect? Imagine a world where risk assets like stocks only rose and never fell regardless of valuations (OK, you don’t really need to imagine it, because that’s what’s been happening since late last year). Envision if bond yields and borrowing costs remained perpetually low at the same time that inflationary pressures were benign (OK, once again, sounds like today). And imagine having all of this in an environment where the daily uncertainty associated with the prices of these assets was minimal (OK, we’ve got that today too). What a world it would be? And maybe, just maybe this is the world that we have officially entered into during the post crisis period. Perhaps policy makers through their actions have finally discovered the master theory that fully explains and links together all fundamental aspects of capital markets. But in case they have not, it is worthwhile to consider what might take place when capital markets move on to something other than the seemingly perfect conditions that we are experiencing today.

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