Cash is King in Treasurys: SHY

There are some trading maxims that bear repeating every once in a while. One such proverb didn’t even arise from the exchanges. It came from NASA during the heyday of the space program in the 1960s. While the U.S. was racing towards the moon, dangers abounded for astronauts. Several were killed in an airplane crash, three were incinerated at a Cape Kennedy launch pad, and many others had near brushes with death. If you’ve seen the movie, Apollo 13, you know what I mean.

If You Don’t Know What To Do…

NASA’s flight director at that time was Christopher Columbus Kraft. He oversaw America’s first spaceflight and first spacewalk. He instituted a policy that would characterize his understanding of the dangers of pioneer space travel. Kraft used to say, “If you don’t know what to do, don’t do anything.” How many investors would do well to remember such advice?

We are still undergoing a tumultuous time in the markets. Each time the market attempts to rally, fear takes over and the rally fails. Since last October, I counted nine such attempts in the S&P 500. Every effort to rally ultimately did not deliver sustained momentum. Prices fell further and then tried to regroup.

Will the Market Fall Further?

However, just because each rally has failed, it doesn’t mean prices will collapse even more. True, we may have found a lower trading range in the last few weeks, but who’s to say this won’t be the consolidation we’ve been looking for. It’s still hard to tell. That’s why I go back to Kraft’s adage: “If you don’t know what to do, don’t do anything.”

Before the big crash in late September and October, we recommended raising cash. We didn’t know the market would move that drastically, but the writing was on the wall. Nearing the end of November, we are equally concerned about short-term downside risk. With Congress contemplating giving away billions to the Black Hole, formerly known as the Big 3 automakers, intelligent solutions are lacking in Washington. Add to it a confirmed recession in most of the world and it seems stocks are almost toxic.

Time for Treasurys

Instead of re-recommending generic cash, we want to be more specific. We think U.S. Treasurys are the best place for your investments at this time. Yields are low, but uncertain times call for responsible measures. This week, U.S. Treasurys are the responsible bet.

One of the easiest ways to pick up U.S. Treasurys is with an ETF. Barclay’s iShares Lehman 1-3 Year Treasury Bond (SHY) is a great way to get exposure to government notes, while avoiding the hassle of buying them outright. Although Lehman Brothers is in the name, it has nothing to do with Lehman stocks, bonds, or bankruptcy problems. Instead, this ETF tracks the Lehman Brothers 1-3 Year US Treasury Index. As an aside, this index will probably be renamed in the near future. For a solid, slightly more risky than cash pick in uncertain times, go with SHY.

All the best.