Simone Foxman | 34 minutes ago
Source: Business Insider
Amid elevated market uncertainty, investors have been clamoring to get their hands on so-called “safe assets,” privately and publicly issued securities with little risk used to hedge against more volatile investments.
Of primary focus has been sovereign bonds. U.S. government Treasuries, Japanese government bonds, and German bunds are trading at record highs, yielding little profit for investors.
But the scarcity—and thus the high price of these securities—has been exacerbated by central bank measures taken to mend the troubles of the crisis.
Since the financial crisis, quantitative easing has essentially given banks in the U.S. and U.K fast cash in exchange for Treasuries and gilts, and immediately freed up funds to put money in riskier places that would spur corporate growth.
However now investors are worried that the long-term effects of driving up the cost of safe assets will make it harder for institutional investors like investment banks and hedge funds to meet the stricter standards of new rules put in place to ensure financial stability.
PIMCO’s Mohamed El-Erian expressed this anxiety in a speech to the Federal Reserve Bank of St. Louis yesterday. “In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability,” he said. “In the case of three institutions in particular (the Bank of England, the Bank of Japan and the Fed), they also change the balance between “safe” and other assets in the financial system.”
The International Monetary Fund has seconded this concern. A team of IMF economists led by Silvia Iorgova describe the crux of this problem in a report out this week (pdf):
The shrinking set of assets perceived as safe, now limited to mostly high-quality sovereign debt, coupled with growing demand, can have negative implications for global financial stability. It will increase the price of safety and compel investors to move down the safety scale as they scramble to obtain scarce assets. Safe asset scarcity could lead to more short-term volatility jumps, herding behavior, and runs on sovereign debt.
Essentially, because there are fewer safe assets, investors are forced to move to riskier assets less agile at hedging their bets if they want to invest at all.
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Front and center with a job interview that is a new business model next week……….it is a risk worth taking and the CEO clearly stated that the current way of doing biz is done……….over……..new ideas and open minds will propel us forward and we are all front and center on this blog….
Love to all of you!
Shelly
General post,
“In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability,” he said.”
My God! Have these “creatures” actually completed an analysis of the gross international intelligence quotient to have arrived at conclusions that ASSUME the rest of us are THAT stupid?
And, after we’ve read the “wisdom” of the IMF pundits suggesting that a continuation of the status quo will “…exacerbate negative feedback loops between sovereigns and the banking sector, as has been observed in parts of Europe in recent months.” We’re then told that, “Obviously, this does not paint a rosy picture. According to the IMF, the only successful method of alleviating this problem has been high liquidity, but central bank measures to do this provide diminishing return, as we can see with the decreasing effect of successive rounds of Fed QE on the markets.”
You know, little family, Albert Einstein once explained that “The definition of insanity is doing the same thing over and over again and expecting different results”. He also said, “Any intelligent fool can make things bigger and more complex… It takes a touch of genius – and a lot of courage to move in the opposite direction.”
Having been told of Albert’s common sense in these matters, do any of you STILL think that the cabal is “in control?” No, I suppose you don’t and I guess they’re not. Okay everyone, get back to work! You have an entire new Universal Paradigm to create and manifest. It’s a really tough job but somebody has to do it!
Love and Light,
SaS