Moon Kil Woong

Global Markets in Review: Risky Assets Disconnect from Fundamentals

The reason risky assets have a market right now is because they seem to be the only assets that pay a decent (but not fair) value for their risk. Certainly safe assets like US Treasuries don't even cover for dollar devaluation, let along current inflation and future inflation. Likewise, with the government using taxpayers money to lure more people into the housing fiasco with low interest rates (yes you still can buy an ARM with low down despite all the banter about regulating the financial system).

Banks now sell mortgages at 5.xx % which can hardly cover the default risk let alone infation etc. The only reason they do is because they can dump them on Fannie Mae, Fredie Mac, Treasury, Federal Reserve, or FHA. Thus the taxpayer is taking all the risk. No bank in their right mind would sell one without being able to sell it to a government or quasi-government entity. Thus, traditional bonds have also becoming low interest paying garbage manipulated by the government so they won't reflect real risk either.

Thus we have what's left, stock and equity speculation, commodities to reflect real inflation and curb real dollar depreciation, and high yielding junk that at least pays enough to cover the 15% currency devaluation we are looking at this year and perhaps next year. At this rate, if you think the Peso was garbage 20 years ago get ready to feel like you're living in the real New Mexico. I wonder what they will think when Americans start accepting pesos as the preferable curency for payment over greenbacks. The Federal Reserve is shameful.