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The investor but right now the traditional fear -- -- Washington.
Friday yesterday that explodes hello fourteen.
For the first time in more than five years having a great -- -- an exasperated dip down.
-- free financial crisis levels.
So we began to dig into what the Smart money he experienced investor out there might be looking -- now.
As the new fear gauge.
And what is it.
Joining us -- to break it down we've got three super Smart guys in all different fields Michael Wolf -- from Bank of New York Mellon looking at currencies.
George zero from RBC capital markets looking at gold and -- -- -- from Wells Fargo.
Looking at bond yields.
Michael all begin first with you and and when we say -- fear.
I'll tell you I have not seen fear in the -- -- all it's not like it's up at 42 which was -- sort of historic high over the past couple of years.
What do you look at say now the market scared.
Well one of the things we look at in the currency markets is -- yen.
When we see Ozzie and above the eighty level that represents.
Market risk appetite below the eighty level risk it risk aversion.
-- currently we're about 82 and a half showing up modest levels of risk appetite.
What we see is when the fix is higher.
It reflects a weak stock market but also a weak US dollar.
And act conversely when you see -- -- lower PC the the stock market and the US dollar higher.
Okay let's just explain to people when you say Ozzy and you're talking about the Australian dollar vs the Japanese yen and when you see that -- around 82 meaning at.
Correct me if I'm wrong I'm -- missing -- a stupid question but.
But the Australian dollar would be weaker against the yen that the yen has somehow this -- flight equality.
Actually what we we see is Japanese investors having so much wealth offshore yeah.
Yes that during periods of risk aversion they'd be repatriated not it's not true.
As as -- to Japan Japanese yen is a safe haven but it it.
Reflects and where are we right now on Aussie yet.
Rcn is approximate 82 and a half or so so -- that in this modest risk appetite territory.
Okay all right so Aussie yen is what Michael looks that let me look at George Shapiro right here on the set RBC capital markets and you're always here to talk about precious metals yes I -- wanna -- the -- what is your fear into gold.
On the price of.
Gold and the volatility of gold is a fear gauge but people.
-- it's a misunderstood asset people think that gold will always gold gets the stock market fluctuation.
So they'll look at the vick's.
That actually some fear gauge of the stock market.
And and trade gold the opposite way but that's really not what gold is gold.
For the last 5000 years has been a mainstay.
Of preventing erosion -- purchasing power.
And it has been basically.
Still a bit stable portable liquid.
Accept that you can convert any time into any.
Major or minor currency.
Well why the hell are we not then at 17100.
Announce what wouldn't we see we're not -- -- from seventeen now -- 16100 announced and actually if you go back to the early 1980s.
When gold was say 850 dollars it's doubled in price.
And that's where we are -- Whereas other currencies for example the US dollars depreciated maybe 25%.
It's trading at 123.
Against the Euro.
Okay me personally when I see bond yields in countries that people feel our flight to quality like Germany and the US when those bond yields drop in the price of the bonds go up.
That's where Jim -- and comes in from -- -- out in Wisconsin to meet that seems at least in recent history during the European crisis to be the true fear index.
-- -- read on that what do you think.
Oh I think you're absolutely correct the the true fear index in our markets has been.
Focus on treasuries.
Did just the ten year treasury yield if you will.
When the Euro markets are in disarray.
You see the yield on the ten year treasury dropping all the -- down -- one point four.
Over the last two to three weeks.
The markets in Europe have been relatively com.
And the yield on the ten year treasury is up to about one point seven or one point 72 this afternoon.
So the that the treasury market has been the gauge of unsettled conditions of fear if you will with -- and I think the primary.
Source of the fear comes from the European markets on the other side.
The high yield corporate bond market has been just the opposite it has been of the beneficiary of low volatility and low fear.
And -- and actually over the past two and a half years has vastly outperformed.
Those assets that have benefited from fear.
Yeah hi my name I don't -- using market using the term bond because that that two totally different things haven't corporates are completely different from treasuries but folks.
Look -- want to show this you guys April 2010 and then asked the big question of all of you.
April 2010 if you look at the -- it fell to about fifteen point six.
Up about three to four weeks later it went even lower OK so the line there the yellow line with the CBO -- fix it went even lower the S&P rally.
But eight weeks later in June the stock market fell 7%.
I'll begin with you Michael are we heading for a correction with such a low volatility index.
I think that what you're going to see is probably things get worse before they get better.
That means higher fixed a weaker stock market and flight equality to the US dollar in the short term.
George I think you're gonna see something that's confusing traders you may see the dollar higher and -- higher together if you live in countries like Argentina.
Greece Italy Spain.
Or other countries where you could be impaired owning the local currency you're gonna buy gold.
And you're also going to -- the US dollar but took gold is -- convertible into any currency any time.
Portable asset and people will be confused because usually when the price of dollar gross up called closed down.
Jim if we see Greece jettisoned from the euros -- -- start here that talk again.
Will we see those bond yields fall back around one point 49% for the ten year and stay under 0% for the German and Swiss deals.
I think under those circumstances you would because the fallout from Greece leaving the Euro is is.
Could be rather severe for.
Not just Greece much for other.
Owner -- owners of all -- types of Greek debt then maybe even Spanish that so.
It wouldn't surprise me to go back to 140 on the ten year but I I think.
Short of that kind of event -- in a range of on the ten year treasury one and a half percent to two.
And if somehow -- Europe remains -- calm the and that's a big -- We could test 2% on the ten year treasury before too long.
Gentlemen it is so great to have this kind of Smart conversation George.
-- that's wonderful wonderful to have all of you and Michael I can't thank you enough because you've taught our viewers a lot about other options of where to look to see if there's real fear in the markets -- thanks so much.