What would a "flight to quality" look like - what would it do?

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I don't know much about world economics, but in my presentation of Y2K to upper management at my company, the question of flight to quality, as investors see their money better invested in more compliant countries, arose. My question is imply, for those of you better at this, what would such a thing do? How would it affect US companies? Thanks!

-- Brett (savvydad@aol.com), March 17, 1999


In the short term (1999), may shore up U.S. markets broadly and specific companies (esp. blue chips) specifically as frightened capital seeks refuge here.

In the medium term (late 1999 thru 2000), multinationals whose "nationals" are non-compliant and/or who reside in countries that have fallen off the face of the earth will see their market values crushed and their ability to stay in business wounded.

Long-term? Hey, I'm only a dog .....

Bottom-line? While a Y2K death march should have started three years ago, it's never too late for your company. I mean, the worst it can do is die anyway, see? But if they're confusing short-term market rescue with fixing the problem, they're hosed.

"It's Y2K, stupid"

-- BigDog (BigDog@duffer.com), March 17, 1999.

I think the flight to quality is already manifest in the US stock market, but not for y2k reasons. I see two more possible flights to quality because of y2k. Initially, stock in companies that have no earnings or suspect earnings will fall by the wayside and the blue chips will stand strong. If there is a final panicky flight to quality, money will be leaving all stocks and going into bank accounts, mattresses and hip pockets.

-- Puddintame (dit@dot.com), March 17, 1999.


Prior answers in this thread are good.

When you notice Big Dog, pay some heed.

My own notion is that flights to quality can skyrocket and crash.

The present pyramid of so-called investments is riddled with corruption and the perpetration of fraudulent numbers' shams. The most popular high fliers have the furthest to fall and surely will.

You may wish to dig down to value at the foundation of this pyramid and tuck some of your life's savings in to real gold coins or bullion.

Gold has never been as inexpensive when measured in relation to the Dow. Conversely, the Dow has never been as lofty in relation to an ounce of real pure gold bullion.

Yesterday, the Dow at 10,000 would buy an historic 35 ounces of gold at $285.00. In 1933 and 1980, the Dow would only buy one ounce at those depressed market extremes. The Dow would buy 18 ounces at its peak in 1929. Is it any wonder that veteran investors regard this Dow as twice as dangerous as 1929?

We all need to remind ourselves that currencies, bank deposits, bonds and shares are paper obligations of others. They should only be owned to the extent that those others are trustworthy. Gold has its own lasting intrinsic value in the hands of its owners and has always been negotiable somewhere at any time throughout history.

Let us be mindful that any obligation of any issuer is only as good as the collateral, income and integrity of that issuer.

I suggest that conditions are screaming at us; Go For The Gold!

With all best wishes, Watchful

-- Watchful (seethesea@msn.com), March 17, 1999.

Remember, the money is in quality stocks so that they can be quickly and readily sold.

-- J. Bruce (JBfrmTC@AOL.com), March 17, 1999.

A flight to quality can be both good and bad depending on how your wealth is distributed. Consider the highly speculative currency markets. A flight to quality would mean currency flowing from over seas markets- increasing the value of the U.S. dollar. But that would likely benefit treasuries and the bond market- securities could still take a major hit. I see that that as a very good buying opportunity.

-- codebuster (codebuster@large.com), March 18, 1999.

If TSHTF would you trade food for metal/paper? Would you trade work for the same? Aquire knowledge and skills, not things that glitter.

-- R. Wright (blaklodg@aol.com), March 18, 1999.


The serious money in a flight to quality will go where it always goes: straight to US Treasuries. That's what it did during the Crash of 87, and in the financial turmoils of the last few years. And if things get seriously rough, that's where it will go again. The caveat here will be if Y2K produces shortages sufficient to affect the GPI; how would the bond market react to that? There might be multiple answers to that. But as a general rule, the above holds true: a flight to quality is US Treasuries first, US blue chip stocks probably second...

-- Drew Parkhill/CBN News (y2k@cbn.org), March 18, 1999.

Brett: Please trust that I'm not being sarcastic - only direct.

1) The fact you admit not knowing about world economies speaks volumes of your maturity. The fact that upper management at your company is asking you this question speaks volumes about them and the topic. I suggest you refer them to George Soros.

2) Over the last 5 years, less than 4 of every 100 "professional" mutual fund managers were able to "guess" better than the S & P 500 index.

3) I trust your company is not in the financial management business. If not, I suggest they help themselves, their vendors and their customers. Leave the worrying about world economics to the "professionals [see 2)]."

-- PNG (png@gol.com), March 18, 1999.

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