liquidity and risk taking / Jeff Saut

great stuff from jeff saut! (headline for more!)

looks like in china (down 9% http://immobilienblasen.blogspot.com/2007/02/china-down-9-biggest-slump-in-10-years.html they have become a little more nervous )

zumindest in china scheint diese these heute einzutreffen.

....my firm believes liquidity certainly plays a role and currently the monetary base is exploding. Moreover, it is not just our money supply that is surging but Austrailia’s (+13% year-over-year), England’s (+13%), the Euro Zone’s (+9.3%), Korea’s (+10.3%), China’s (+16.9%), etc.

Yet as my firm has suggested, while liquidity is unquestionably a driver of asset classes, if investors are unwilling to take that liquidity and buy something with it asset classes go nowhere. Manifestly, you can throw all the liquidity you want at the markets and if investors have no “risk appetite” they will merely take said liquidity and stuff it in a money market fund.
We, therefore, have argued that investors’ risk appetite is the ultimate driver of asset prices and after the nearly unprecedented rally from July 2006 to February 2007, participants’ risk appetites are currently high. When this will change is unknowable, but change it will.

i´ve put up a chart from end of 2006 that meassiures risk taking. but you just have to look to the spreads, the latest action in the private equity sector, carry trade etc to see that risk taking is going into extra innings.....

ich habe hier einfach mal nen chart von ende 2006 genommen. man muß aber nur auf die spreads und die letzten wahnwitzigen private equity transaktionen, den carry trade etc blicken um zu sehen das hier wohl bereits die verlängerung läuft...