September 19, 2014

Investors driven out of safe investments by bank regulations and QEs, are they yield-hungry or just yield-starved?

Sir, Tracy Alloway and Michael MacKensie write that “Sales of US corporate bonds reflect a worrying lack of ratings differentiation” and they title that “Yield-hungry investors overlook credit risk” September 19.

All Fed’s QE’s, as well as the risk-weighted capital requirements for banks, as well as the upcoming liquidity requirements for banks, as well as much other risk-adverse regulations, only end up crowding out normal investors from what is deemed as “absolutely safe”, that which used to be said belonged to widows and orphans. 

And in that respect I wonder if “yield-hungry” is really the correct description of investors who seem more to have been yield-starved by official governments actions.

But also, let us not forget to ask ourselves… when can the extremely safe havens become so extremely dangerous crowded, so that suddenly the risky waters outside are actually safer?

And, is it not sad to read that increased corporate leverage is not resulting from increased real economic activity but only from “the combination of share buybacks dividend increases and M&A activities? I bet some years from now some authorities will once again try to explain that to us as just the result of “unintended consequences”… let us not be fooled by that… at least to me they are guilty, until they proved beyond any reasonable doubt it was not their intentions… or they plead insanity :-).