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Stanley Druckenmiller: Why the Bull Market Is Exhausting Itself

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1 2 3 4 5
Part 5
Stanley Druckenmiller: Why the Bull Market Is Exhausting Itself PART 5 OF 5

How to Allocate Your Portfolio when Global Uncertainties Rise

Global uncertainties are increasing

Global uncertainties are rising throughout the world, so investors are becoming more cautious about investing their money overseas. In the past, central banks have provided major support by means of their monetary policy measures. Now central banks have almost used up their tools to drive the market. Europe (FEZ) (VGK) and Japan (EWJ) (DXJ) already entered into negative interest rate policy, and investors are thinking about the US (IVV) (SPXL) (VFINX). Negative interest rates aren’t good for the economy. Read BlackRock’s Larry Fink: Negative Rates Reduce Consumer Spending to understand why Larry Fink thinks a negative interest rate will reduce consumer spending.

How to Allocate Your Portfolio when Global Uncertainties Rise

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Where to look as uncertainties increase

When global turmoil increases, investors generally look for safe-haven assets like gold and the yen. We discussed earlier in this series that Stanley Druckenmiller suggested investing in gold, as the current equity market scenario isn’t clear. The yen also starts to appreciate when turmoil in the financial market starts. The yen isn’t the only currency to hold for its safe-haven status. A study by the IMF (International Monetary Fund) also revealed that the Swiss franc appreciates against the US dollar when equity markets start underperforming. This study also states that the safe-haven currencies are normally backed by high net foreign asset positions. Along with foreign assets, the country must have a lower public-debt-to-GDP ratio and high liquidity in the stock market.

Over the last six-month time period, the CurrencyShares Japanese Yen ETF (FXY), which tracks the performance of the yen, returned 14.5%. The SPDR GoldShares (GLD) returned 17%. However, the SPDR S&P 500 ETF (SPY) returned -3% during the same time period.

To learn more, read Will the Reversal in Emerging Markets Provide Yields?

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