Thursday, August 2, 2007

Global Liquidity And Financial Markets

Every asset class one can imagine is going through a massive bull phase un-seen in the history of financial markets. Whether it be Stocks, Bonds, Commodities, Real Estate, Art, Mortgage market. Never before we had a secular bull run in all these asset classes at the same time.

Huge liquidity (money) unleashed by central banks across the world has been fuelling this asset price inflation for the past 4 years and its in the interest of wealth managers, portfolio managers, investment advisors, financial planners to continue advising wealthy individuals/corporates to keep pouring money in these assets in order to out-perform or out-do each other. These individual/corporates also desire to out-do each other and hence raising their risk appetite in order to achieve more returns and hence take more risks in the form of leveraged by-outs/take overs as shown by some large PE funds.
Also they leverage in financial markets across the world in order to gain large profits and hence open the window for disaster if someting goes wrong in terms of rise in interest rates, big fluctuation in cheap to borrow currencies like Yen, an epidemic spread likes of bird-flu across a continent like europe, major terriorism attack on developed countries, sharp increase in crude oil prices.
Any adverse event can thus poses great risk to investors/traders financial health.