Too Much Money Chasing Too Few Assets

There is no shortage of commentary on the Bitcoin "craze" (chart above), you can read about it anywhere, in some cases there are plenty of people way smarter than me weighing in. It will end when it ends and there will be plenty of tears and lost fortunes.

This is what happens when there is too much liquidity in the financial system which is the fallout of the aggressive central bank extra-ordinary easy monetary policy post financial crisis.

The problem is that this money is not necessarily finding its way into long-term economic development (which would elevate productivity) and a good chunk of it is entering the "casino economy" with classic "get rich quick" human behaviour.

And we know how that usually ends:

A classic case in point (and a scary sign of the times): I talk to lots of pretty regular folks on a daily basis. Some are clients, but many are non-clients looking for some help. The sign of the times is that many of these calls are from investors who have been afraid of investing since they suffered through  and the frightening and gut-wrenching 2008-2009 stock market collapse.

Just now are they regaining the confidence to be comfortable stepping back in. Oh dear, I think, not exactly the best of times for that. Volatility has been low and they have been successfully (with small amounts of money) buying ETF's on the dips in stock markets. This has been building their confidence and they are looking to commit larger amounts.

The big problem, of course, is that when asset bubbles burst (and they will) all risk assets become more closely correlated. That means that selling of risk assets intensifies across the board: as assets get sold to pay for the losses on other assets.

Some are receptive to my cautious approach, others tell me stories of their search for an "advisor" where the sales pitch has been based on the notion of a continued multi-year bull market and that there is no time like the present to jump in.

I would not want that kind of risk in my portfolio when the metrics that we use to measure value are screaming "expensive" at me.

As per usual, I suggest that if they want good risk management and long-term stewardship for their wealth, then we are the folks to turn to (see our most recent 11 minute weekly video on how we assess risk). If they want to gamble, we are not.

Past performance is no guarantee of future results, but at High Rock, we work very hard to try to get the best possible risk-adjusted returns for our clients.