Distorted Markets & Disillusionment One Asset At A Time

Thanks to the repression of the world's central banks, investors have exited cash and piled into "everything else," but while this is no surprise to most, Citi's Matt King warns of the possibility of an "entrance with no exit" as investors reach for yield has distorted primary and secondary markets, forced risk-averse investors into alternative asset classes, distorted markets beyond any fundamentals, and left markets incredibly illiquid. This, he concludes, sets up a problem that we are already seeing as investors are disillusioned one asset at a time…

Via Citi's Matt King

Out of Cash and into everything else… investors have been reaching for yield…

With Emerging Markets the most popular destinations… (which could be a problem as it is very crowded still)

But broad investment grade credit markets have exploded as demand beget supply and firms have doubled their outstanding debt

which fits perfectly withgout recent dream-crushing discussion of the rise in cash on corporate balance sheets

US companies are carrying far more net debt than in 2007

Another curiosity is this notion that US companies have substantially reduced their debt pile and are therefore cash rich. The latter is indeed true. Cash and equivalents are at historically high levels, but rarely do those who mention the mountains of corporate cash also discuss the massive increase in debt seen over the last couple of years.

In fact, debt levels have been growing to such an extent that net debt (i.e. excluding the massive cash pile) is 15% higher than it was prior to the financial crisis.