🔐 Are Treasuries Still the Safe Choice?

What’s on the Menu 🍴

There are so many places to invest (or gamble) your dough.

But are they all created equal?

In today’s Daily Dough, we’re taking a look at some “safe & timeless” investment opportunities…

And comparing them with some high-stakes bets!

• Are Treasuries Still the Safe Choice? 🔐

• Is Sports Betting Replacing Investing? 🤼

•  A Greenlight From the Fed 🟢

Today’s newsletter is a 5 minute read.

Are Treasuries Still the Safe Choice? 🔐

For decades, U.S. Treasuries were the golden standard in "safe" investments—your go-to for peace of mind during market chaos.

But according to some fresh research that rocked the recent Jackson Hole Economic Symposium, that peace of mind might be fading faster than we thought.

Here’s what’s going down:

• During the COVID-19 pandemic, investors didn't cling to U.S. Treasuries as tightly as usual.

• Instead of pouring money into these government bonds as a haven, they started treating them more like risky assets, similar to those from other countries or even large corporations.

• This is a huge shift considering that Treasuries were once the Ferrari of safe investments—fast, reliable, and undeniably prestigious.

• The study argues that the massive government spending to counter the pandemic's economic fallout may have spooked investors.

With the U.S. borrowing at record levels to fund stimulus checks, business bailouts, and healthcare expansions, the question became: How much debt is too much?

Interestingly, when U.S. Treasury yields (basically the return on investment for these bonds) started rising sharply during the pandemic, the Federal Reserve swooped in like a hawk, buying up bonds to stabilize the market.

But the researchers suggest this move might have just papered over deeper problems—problems that could make U.S. debt less of a sure bet in the future.

Of course, not everyone buys this doom-and-gloom scenario.

Critics point out that the U.S. has never defaulted on its debt and controls the global reserve currency (that’s the U.S. dollar, in case you were wondering).

Plus, during the pandemic, the U.S. still managed to finance massive deficits without breaking a sweat.

So, what’s the takeaway?

While Treasuries might not be the impenetrable fortress they once were, they’re still a key player in the world’s financial system.

But as government debt climbs and market behavior shifts, investors might want to keep one eye open—just in case.

Is Sports Betting Replacing Investing? 🤼

Brief 1 Text, images

Brief 1 Text, iIt seems Americans are increasingly trading in their stock portfolios for a shot at hitting it big with sports betting.

A recent study titled “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households” sheds light on a concerning trend:

For every dollar spent on sports betting, household investments in stocks drop by over $2.

That’s not just a minor blip—it’s a financial tectonic shift, especially for lower-income households.

The legalization of online sports betting has been like a neon sign luring in those who are already financially stretched. Instead of diversifying into safer investments, these households are doubling down on risky bets, driving up their credit card debt and overdraft fees.

As a result, their net investments in the stock market have plummeted, with a 14% decline reported in states where sports betting is legal.

Some argue that this is an overblown panic—after all, isn’t gambling just another form of entertainment?

The gaming industry certainly wants us to think so. They’re even promoting responsible gaming initiatives, as if a friendly reminder will stop someone on a losing streak from trying to win it all back.

But here’s the kicker:

Sports betting and stock trading aren’t as different as they might seem. Both are high-risk activities, and the pandemic only fueled our collective appetite for quick wins.

Retail traders have been diving headfirst into options trading and meme stocks, often with more luck than strategy, reminiscent of a night in Vegas.

Meanwhile, platforms like Robinhood, which rose to fame during the meme stock frenzy of 2021, are now trying to steer users towards more stable investments like index funds.

But the shift from speculative trading to long-term investing isn’t easy, especially when sports betting offers the immediate thrill of a potential payday.

Regulators are now facing tough questions. Should there be tighter controls on the sports betting industry to protect vulnerable investors?

The study suggests so, and with the growing integration of gambling and investing, this might be a bet worth taking.

 A Greenlight From the Fed 🟢

At the Jackson Hole symposium last Friday, Federal Reserve chairman Jerome Powell confirmed that the central bank will begin to shift towards interest rate cuts beginning next month.

Powell stated: “We do not seek or welcome further cooling in labor market conditions…the time has come for policy to adjust”

As you’d expect, stocks, Bitcoin, gold, and other risk assets surged immediately after.

The early August selloff already seems like a distant memory, with a majority of stocks within the S&P 500 trading well above key moving averages:

How much further could the rally go?

Perhaps quite a bit!

Investor sentiment is far from stretched at the moment:

The market has been so worried about inflation and “higher for longer” interest rates since late 2021.

But the Fed may have finally given the greenlight for investors to stop worrying about interest rates and embrace more risk.

There’s still plenty of uncertainty with elections and geopolitical conflict, but those types of indirect risks tend to be shaken off easily by the market.

There’s also a potential liquidity impact if investors shift more capital out of money market funds and back into other asset classes.

So if risk taking is back on the menu for investors, what areas could benefit?

Here are some sectors worth watching for bigger moves in the coming weeks & months:

• Small Cap stocks (IWM / IJT)

• Crypto (BTC / ETH / SOL / WGMI)

• Highly Shorted stocks

• Banks & Financials (KRE / KBE)

• Biotech (XBI)

• Cyclicals (Autos, Airlines, Retail, etc)

• Commodities

As we enter a new phase of the market cycle it’s worth keeping an eye on where the capital is flowing!

Food For Thought 🧠

“The challenge of history is to recover the past and introduce it to the present.”
- David P. Thelen

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.