A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006.

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Entry from February 20, 2011
Flight to Quality

A “flight to quality” is when investors sell higher-risk investments and purchase lower-risk investments (with lower potential returns). In the past, a “flight to quality” has meant accepting the lower returns of government-backed securities, on the theory that the federal government is safer than any company or municipal government.

The term “flight to quality” has been cited in print since at least 1966, but began to be popularly used in 1974-1976, during New York City’s financial crisis. Investors fled New York City’s financial offerings for the “quality” or safety of the federal government.


Wikipedia: Flight-to-quality
A flight-to-quality is a stock market phenomenon occurring when investors sell what they perceive to be higher-risk investments and purchase safer investments, such as US Treasuries, gold or land. This is considered a sign of fear in the marketplace, as investors seek less risk in exchange for lower profits.

This also is the increased demand for assets that are government-backed, while is also a decline in private asset demands.

Investopedia
What Does Flight To Quality Mean?
The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This flight is usually caused by uncertainty in the financial or international markets. However, at other times, this move may be an instance of investors cutting back on the more volatile investments for the conservative ones (i.e. diversifying) without much consideration of the international markets.

Google News Archive
17 September 1966, Victoria (TX) Advocate, “Market Finishes Mixed,” pg. 6B, col. 3:
Analysts say some investors may have moved money into the blue chips that make up the Dow in a sort of “flight to quality” after sharp declines of late in many stock prices.

18 December 1974, New York (NY) Times, “The Increase in Prices Is Laid to Bargain Hunting and Short Covering” by Vartanig G. Vartan, pg. 74, col. 4:
The size cutback reflects several factors, including lessened demand, a heavy calendar of other negotiated tax-exempts during December, the adverse performance of New York City’s bonds and the flight to quality issues by many investors.

18 October 1975, New York (NY) Times, “‘No Default’ Rallies Debt Market” by Vartanig G. Vartan, pg. 43:
The news yesterday afternoon of New York City’s escape from default seemed to have little impact on the Government market. “We’ve seen a flight to quality here for the last several weeks,” a dealer noted, “so that any change in the city’s situation really hasn’t affected us.”

Google News Archive
2 November 1975, Ocala (FL) Star-Banner, “Bank of America Call’s Ford’s Plan ‘Unacceptable’” (AP), pg. 8A, cols. 5-6:
Again taking issue with the President’s view that New York’s problems have had a minimal effect on the bond market, the position paper said:

“It is a matter of record that the municipal bond market has experienced a ‘flight to quality’ since New York’s difficulties.” It noted that the bulk of municipal borrowers, especially issuers of bonds for housing, education, health care and utilities, are not in that sector, but in the medium and lower-grade category where sales difficulties have appeared.

3 November 1975, New York (NY) Times, “Alaysts Ponder Monetary Easing” by Vartanig G. Vartan, pg. 57:
Meanwhile, the Government securities sector has, in a sense, been a beneficiary of New York City’s financial crisis because this has created a flight to quality by many investors.

New York (NY) Times
Dow Drops By 72.44, To 1,776.53
By LAWRENCE J. De MARIA
Published: December 04, 1987
Yet another wave of pessimism hit Wall Street yesterday as jittery investors ignored presumably positive news about the dollar and interest rates.
(...)
The stock market’s latest plunge set off another ‘’flight to quality’’ as worried investors bought Treasury securities, pushing down yields.

OCLC WorldCat record
“Flight to quality” in bank lending and economic activity
Author: William W Lang; Leonard Isamu Nakamura; Federal Reserve Bank of Philadelphia.
Publisher: Philadelphia, Pa. : Economic Research Division, Federal Reserve Bank of Philadelphia, [1992]
Series: Working paper (Federal Reserve Bank of Philadelphia), no. 92- 20. 
Edition/Format:  Book : English

OCLC WorldCat record
The Flight to Quality: Evidence from the Futures Markets: Commentary
Author: M G Castelino
Edition/Format:  Article
Publication: REVIEW OF FUTURES MARKETS, 12, no. 1/2, (1993): 133
Database: British Library Serials

OCLC WorldCat record
The financial accelerator and the flight to quality
Author: Ben Bernanke; Mark Gertler; Simon Gilchrist; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, [1994]
Series: Working paper series (National Bureau of Economic Research), working paper no. 4789. 
Edition/Format:  Book : English

NYTimes.com: Notions on High and Low Finance by Floyd Norris
September 17, 2008, 12:00 pm
Flight to Quality
A money manager advises that the ultimate flight to quality is under way, and he cannot find Treasury bills to buy. He told me that he had to go out to December to find a T-bill that he could purchase with any yield at all, and that was well under one-tenth of a percentage point. The others, if they could be purchased at all, were available only for the amount they will be worth when they mature.

Posted by Barry Popik
New York CityBanking/Finance/Insurance • (0) Comments • Sunday, February 20, 2011 • Permalink