As Keynes put it, “our desire to hold money as a store of wealth is a barometer of the degree of our distrust of our own calculations and conventions concerning the future.”
The signs that money is moving and looking for risk are starting to show up in many markets. Equities are higher. Corporate spreads are tighter. Emerging markets are better. Now we will not see Treasury bills at anything like pre-crisis levels but all of the talk is about the growing risk appetite. Unfortunately, I get uncomfortable when the argument hat there is greater appetite for risk is a fact that risk assets are moving higher in price.Risk appetite should be related to a change in future return expectations. Higher expected returns will lead to changes in portfolio composition. Because we cannot observe expectations directly we can only assume that this is occurring when prices move higher. Is this just another momentum story?
The signs that money is moving and looking for risk are starting to show up in many markets. Equities are higher. Corporate spreads are tighter. Emerging markets are better. Now we will not see Treasury bills at anything like pre-crisis levels but all of the talk is about the growing risk appetite. Unfortunately, I get uncomfortable when the argument hat there is greater appetite for risk is a fact that risk assets are moving higher in price.Risk appetite should be related to a change in future return expectations. Higher expected returns will lead to changes in portfolio composition. Because we cannot observe expectations directly we can only assume that this is occurring when prices move higher. Is this just another momentum story?
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