The Perils of the New Liquidity
Jim Jubak has an interesting column here which discusses the counterintuitive phenomenon that we've seen in the market lately. When equities fall and currencies appear weak, the "safe havens" like gold get killed too.
This isn't just a today thing. It happened during last summer's big drop too. And to me, it's pretty good evidence that the markets aren't floating higher on sound assett pricing models, but on a sea of "liquidity." In other words, the usual, rational reasons for moving from one asset class to another aren't applying, because the valuations assigned to too many asset classes simply aren't rational.
Everything is up because money has been cheap for a long time, leverage is en vogue, and all that moolah needs to end up in someone's clutches.
But it need not stay there forever, as the Shanghai Casino -- I mean stock market -- proved a few weeks back. When (not if) there's an actualy economic event to precipitate a real panic, the liquitidy will dry up faster than beer on the sauna rocks. And when that happens, a lot of people won't be able to cover, no matter how hard they duck.