Immensely Concentrated Positions in “Fantastically” Overpriced Markets with “Unlimited Tolerance for Risk”
by Wolf Richter
WolfStreet.com
February 3, 2015
The miraculous multi-year performance of the stock markets and the even more miraculous performance of the bond markets are the proudest achievements of the major central banks around the globe, led by the biggest of them all, the Fed. By now, $4 trillion in developed-world government bonds have soared to such heights that they sport “negative” yields where investors pay to hold this paper, and these investors are jostling for position to do just that.
The extent to which this has happened – are that many investors that stupid or panicked? – has befuddled many rational minds.
“We think it is actually quite nutty to continue holding long-term developed-world government bonds at current levels,” that’s how the $25-billion hedge fund Elliott Associates explained the phenomenon in a client letter, which Bloomberg and Reuters had obtained. It had more choice nuggets:
Today’s trading levels of stocks and bonds reflect ‘thumb on the scale’ valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short-term policy rates, as well as an essentially unlimited tolerance for risk on the part of large segments of the international investing community.
These global stock prices “cannot possibly reflect the best analysis of millions of investors regarding the prospects of private-sector corporate profits.”
The Rest…HERE
