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BUSINESS FIRST June\July 2012 www.businessfirstmagazine.co.uk


MAYDAY! By Tim Price


‘There’s enough bang in there to send us all to Jesus.’


Anonymous commentator on the nature of JP Morgan’s Chief Investment Office credit exposure.


The most important attribute of any investment is the price you first pay for it. An attractive valuation can ultimately transform even the lousiest of investments into a good deal. But overpaying can turn an ostensibly high quality investment into a dud. Courtesy of trillions of dollars’ worth of stimulus (SocGen’s Dylan Grice points out that since 2008, the US Federal Reserve and the Bank of England have printed enough money to buy up 60% of the issuance of their public debt), US Treasuries, UK Gilts, Japanese government bonds and German Bunds now represent return-free risk. Five year paper in each of those markets now yields substantially less than 1%. If they ever amounted to high quality investments, they certainly look like junk now – albeit with a valuation more commonly associated with the bluest of blue chip assets.


One of the arguments cited in favour of equities as a generic asset class today is that they look favourably valued versus government bonds. But there are a few problems with this argument. On any rational analysis, the bull market in


Drowning, not waving


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