“The U.S. Treasuries market could now be described as a Ponzi market” according to Hyman Minsky of asset manager Guggenheim Partners. Now is a good time to look at stocks with key resource assets.
Ponzi schemes are named after Charles Ponzi and all follow a similar path. Money from new investors is used to help pay off old investors. While the schemes can work for a little while, they eventually fall under their own weight. Minsky compares U.S. Treasuries to a Ponzi scheme because “the only reason investors would buy Treasuries today is that they expect the Federal Reserve will buy them at higher prices in the future.”
If Minsky’s assessment is correct, assets of all types will feel the heat of an unraveling market. If the U.S. government’s ability to pay comes into question, then investors should strongly consider owning companies with real assets backing up their businesses. And, a focus on income-paying companies will help ease any near-term pain from volatile markets.
Oil and natural gas
Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s shares have been held back by difficulties in the company’s drilling efforts in Alaska and its big bet on U.S. natural gas. The drilling issue is industry wide, as companies have increasingly been forced into more dangerous environments to find resources. Weak U.S. natural gas prices, meanwhile, make the company’s large bet here look like a poor choice. That said, both Exxon Mobil Corporation (NYSE:XOM) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) expect gas to be a big business in the future, which could turn this negative into a positive over time.
Commodity prices make the top and bottom lines at Royal Dutch Shell plc (ADR) (NYSE:RDS.A) quite variable. However, it has a long history of regular, though not annual, dividend increases. Oil and natural gas will remain in demand no matter what happens to U.S. Treasuries.