"Whatever It Takes" Remains The New Normal
By Tyler Durden
The gating of billions of dollars in commercial real estate funds by six U.K. institutional money managers has quite properly roiled markets. But, as Bloomberg's Richard Breslow notes, it's not because of the absolute size of the funds or because it will take some time for investors to get their cash out; rather, because it has exposed the manifold flaws continuing to drive investment psychology and practice.
Flaws reminiscent of some of the most obtuse assumptions that led to the financial crisis and have been the cornerstone of extraordinary monetary policies since then.
These funds exist because of the desperate search for any sort of yield. Can’t make any money from sovereign bonds? Just substitute into your portfolio a slice of a retail warehouse in Northampton.
A naive sense of liquidity in long-term investments with no ready market was built on the belief that prices could only go up. That you’d always be selling on the offer. After all, these funds are backed by household names, no need to read the fine print in the redemptions section.
It’s said identifying bubbles before they burst is nearly impossible. People know what a bubble is. They’ve just come to depend on central banks providing a put if any nasty surprises happen. Or warn them personally to get out before everyone else if the band is going to take a break.
The reason it’s so hard to ring-fence this sort of episode is that when investors can’t get liquidity where they thought, they have no choice but to find a piggy bank somewhere else. A property fund slows payments, ergo some currency fund ends up having to scale back its positions, even if they’re on a great run.
When I watch BOE Governor Carney, I see a man who knows he has to nip this in the bud. In doing so, he needs to encourage more of the same investment behavior that created these risks. Round and round we go.
“Whatever it takes” remains the new normal.
Source: "Whatever It Takes" Remains The New Normal
