There are big changes afoot in the investing world. The WSJ has a new series that examines the effects of cheap money, low interest rates, and the lengths (and risks) huge funds of investment money will take to find a return.
One lesson to remember is that investors never remember lessons. Expect more bubbles and more busts because the system clearly favor risks over wisdom and the speed of capital flows has never been greater.
Huge Flood of Capital to Invest
Spurs World-Wide Risk Taking
Corporate and Foreign Savings Chase Assets, Driving Prices Up, Keeping Returns Low
'A Global Game of Chicken'
November 3, 2005
A week after Hurricane Katrina, a defaulted loan backed by aging tugboats and barges in coastal Alabama came up for sale. Mooring Financial Corp., a firm that buys troubled loans at a discount, was interested, but couldn't determine how well the boats had survived the hurricane, or even whether their cash-starved owner had kept up the insurance on them. So Mooring bid just 50 to 55 cents on the dollar, figuring that was generous for such a dicey deal.
Instead, it lost out to a bidder who offered about 10 cents more on the dollar, says the Virginia firm's president, John Jacquemin. "We would have won this...one to two years ago," he says. "But in the current market, there are few, if any, 'ugly stepchildren' that fail to draw aggressive bids."
