Bond Outlook [by bridport & cie, May 2nd 2007]
| If Cheney’s investment manager says it, and it is reported by Bloomberg, then the opinion takes on near official status: the current bubble is now global in terms both of countries and asset classes. Thus says Jeremy Grantham of GMO (Boston). We feel in sympathy with this view, having stated in this Weekly many times that the extra spread attached to higher risk in our field of specialisation, fixed income, is inadequate. Now Grantham is heading a pack of commentators who are noticing the global nature of the current period of over-valuation of financial and other assets. |
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| Who says “bubble” also asks “when will the bubble end?”. Unfortunately the timing of the end is unforeseeable, almost by definition, since it will probably be an unexpected event – a shock – which pricks the bubble, rather than the steady working through of an inherent weakness, like households in the USA no longer being able to extract capital from their housing to keep spending more than they earn. Yet our task at bridport is still to identify these inherent weaknesses, since they are the stress lines which crack when the shock comes. |