Thursday, August 14, 2014

Risks are building - can you pull-out in time?


“Some of our macroeconomists are not recognizing the overall build-up of risks. We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost. Investors say ‘we will stay with the trade because central banks are willing to provide easy money and I can see that easy money continuing into the foreseeable future.’ It’s the same old story. They add ‘I will get out before everyone else gets out.’ They put the trades on even though they know what will happen as everyone attempts to exit positions at the same time.”

- Raghuram Rajan 


Rajan, the head of the central bank of India and a former professor of the University of Chicago, is always one of the most insightful commentators on the economy. He is no friend of unlimited QE. We have quoted him before and have been impressed by his work. 

His comments are what everyone is thinking right now. Ride the monetary wave. Bad news will just mean that the Fed will continue to keep rates low longer. Do not fight the Fed. Some astute analysts will say that this cannot continue and the response will always be the same. I can stay at the a party because I am good at getting out at the right time. I will be faster than everyone else. Did that work for many in 2008?

When the next set of really bad news comes many will just view it as a buying opportunity and miss the chance to get out of the market.

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