Month: February 2013

Financial Jenga

ICangles Investment Post…

The financial markets at the start of 2013 remind me of a giant game of Jenga, where players build a tower out of wooden blocks and then take turns pulling out blocks until the increasingly unstable structure eventually collapses. Today, the stock market is climbing towards new highs on a foundation of cheap money that is anything, but stable. Unfortunately, all that cheap money means investors have little choice, but to play this game. The term of the moment to explain the recent rally in the stock market is “moving out on the risk curve.” As central banks have embarked on a new round of money creation to purchase bonds and push yields down, investors are being driven into selling bonds and CDs to buy riskier stocks. Participating in the stock market rally has become one of the only viable options for investors to keep up with inflation, as central bankers try to force money to flow into more risky investments associated in their minds with driving economic growth. In the process the government is doing retirees no favors.