One of the most enduring legacies of the financial crisis is the death of the credible notion that traders flock in and out of "safe havens." As Bloomberg's Richard Breslow notes, investors don't particularly care to seek safety. Why waste the effort when the central banks will be buying the dip if you don't.
It’s also true that no one knows what is a haven. It's become little more than a parlor game to advise what won’t be affected or will benefit from this or that calamity in an utterly interconnected world.
Rushes into safe assets represent no more than the private sector flow equivalent of front-running central banks. They just have a shorter shelf life.
Investors tumbled even further down the rabbit hole of ridiculous sovereign bond yields after the U.K. referendum.
They realized that, at worst, rate hikes were off the table. And at best, the base-case scenario, even more extraordinary monetary policy is coming.
Ten-year Italian BTPs look like a steal at 1.25%. Forget an imploding financial sector and political uncertainty, I hear Draghi’s a buyer.
Shrewd investors are flocking to the Japanese yen because if the rest of the world falls apart, Sony will just sell more Walkmans domestically?
In 2007, after Bear Stearns shuttered its two subprime funds there was the quaint theory that everyone should pile into simple stuff like the S&P 500 to avoid those misbehaving and suddenly not understood derivatives that had nothing to do with the broader economy. Remember the new all-time highs, or what happened after?
The irony is that central banks have embraced that logic. Let them “put” it to you this way.
It’s not only the gross distorting of markets through misguided monetary policy. Ever since the U.S. was downgraded there’s been no realistic appreciation and respect for risk; credit or geopolitical. No country can realistically be rated higher. Even if Liechtenstein is a very idyllic place.