The end of credit markets will begin, said Gross, when assets offer too much risk and too little return, causing an investor exodus into alternatives such as cash or real assets.I love how these guys state the obvious. Anyway, according to my quick estimate, the S&P 500 is priced with slightly over a 4% risk premium. This indicates that investors think there is little risk at all in equities, and the same probably holds true for credit. But the lower the risk premium gets, the greater the actual risk. So, the longer this apparent bull market continues, the riskier it is getting but with the Fed pumping more cash in, I'm still waiting it out. It's still possible to have a good outcome, although I actually do think that's not very likely in bonds, and maybe not in stocks either.
I have to wonder whether the Fed has actually averted an actual depression, or if it has just delayed the inevitable. I think it depends on how the Fed handles things going forward... and how lucky we are.
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