Reply #35: Everything is too expensive now

[54anickel]

http://afr.com/articles/2004/06/09/1086749779976.html

Risk has its price, and the price is rising. Thanks to lax monetary policy in the US, blind orangutans could have managed money last year but investors and companies are ill-prepared for the emerging risks.

Here is one well-aired but nevertheless astonishing statistic: 92per cent of the stocks in the S&P500 index rose last year. That was the biggest percentage of gainers in any year since 1980, which is as far back as S&P goes.

The riskiest - the most indebted, most vulnerable companies - paid off the best.

That was fun. It was like the best of the '80s and '90s, rolled into one: junk bonds and tech stocks boomed. Treasuries rose and commodities skyrocketed. Wall Street was cool again.

But too much capital is chasing too few good ideas. It isn't just stocks. There is no asset class that now looks attractive: mainstream stocks, small-cap stocks, treasuries, corporate bonds, junk bonds, real estate, cash, emerging-market assets, commodities all are either expensive or yield little.

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"It's an all-asset mild bubble, instead of one super-bubble," said Cliff Asness, managing principal at AQR Capital Management, a money management firm with $US11.5 billion ($16.4 billion) under management.

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If the world truly becomes a less-volatile place, then levering up to turn a small, safe return into a larger one is rational. It would be nice to think the markets have taken into account all the changes that a new Fed posture will wreak.

But such an assumption is, well, risky.