Monday, June 30, 2014

Walking the Risk Plank

The moon looks mean
And the crew ain't stayin'
There's gonna be some blood
They're all sayin'
--Jay Ferguson

Increasingly, people seem to be convincing themselves that as long as 'risk free' interest rates are suppressed low, then risky asset classes will move higher. If the yield on a security is greater than zero, then it is worth buying, the basic rationale goes. Even more so because central banks seem willing to backstop such investment policy.

This rationale is grounds for financial suicide. How much will you pay for a dollar of annual yield? As people are willing to pay more and more for less and less, they are walking further out on the risk plank.

A whole lot of people will be wondering what they were thinking when the plank drops away.

1 comment:

dgeorge12358 said...

Risk is a part of God's game, alike for men and nations.
~Warren Buffett