Risk Trade Yields to Yen for Safety

Focus: GLOBAL

Igor Greenwald Image Igor Greenwald Chief Investment Strategist, MLP Profits

The new rules for successful global investing couldn’t be simpler: Equities are to be owned one month out of every three, coinciding with reports of lucrative corporate earnings. The rest of the time, one must seek out the lowest yields, from zero in gold to the miserly payouts on US, Japanese, and German bonds, no matter how much these heavily indebted sovereigns try to borrow.

At least that’s been the pattern in 2010. Last month’s profit reports argued that emerging-markets consumers and developed-nation exporters could safeguard global recovery. This month, that notion has been challenged by ominous signs of further weakening in the US, Japan, and stock indices the world over.

Tokyo’s Nikkei is down 21% in less than five months and at the lowest point since April 2009. Despite a public debt nearly twice Japan’s annual gross domestic product, the yen hit another 15-year high against the dollar Tuesday, weighing down exports German bunds, like US Treasuries, have never been more popular, in stark contrast to some of Europe’s problem credits, notably those of Greece and Ireland. The latter was downgraded by Standard & Poor’s this week on worries that Irish banks will need more help than the country can afford.

Could the news possibly get any worse?