Over the past three years we have been beaten over the head with the concept of flight to quality; simply as the equity market falls the bond market rallies. Global unrest crushes equities, the warm fuzzy blanket of Quantitative Easing rallies equities. Now I present to you the idea of equity flight to quality. Huh? Yes, flight to equities for safety.
Here is the theory. If I’m a global fund manager, especially in Europe, I’ve seen my local stock markets get crushed so I need to find somewhere to put my money. I don’t trust European bonds, I don’t trust European stocks. Precious metals are volatile especially if based on the wrong currency. So I look across the pond and see US Treasuries and US equities. US Treasuries are offering record low yields; the 10 year just fell to 1.5% and that just doesn’t look very appealing. This leaves US stocks.
