No Diving

The obsession with spotting “bubbles” in capital markets and elsewhere seems to border on the inane. Pricing which lies outside of what would be considered normal valuations, in our opinion, do not constitute a true “bubble”. More importantly, the discussion of whether something is “bubbly” or not completely misses the point. We take much greater umbrage at the constant commentary uttered by almost all index hugging managers who state ” we know (fill in the blank asset) is probably overvalued, but where else are you going to put your money”. This relative value investing is the absolute antithesis of what true value investors practice and preach. Whether it is Rwandan debt at 7% or Greek debt at 4% or the entire junk market trading at 265 basis points over treasuries, not only have Global Central Bankers pushed everyone into the risk pool, there is now only a foot of water left in the shallow end. Risk and reward are not predicated on where Central Bankers artificially set rates, but are based categorically on what return you demand for the risk you are taking. If those returns are not adequate, you don’t play. But, Central Bankers are intent on ensuring that people continue to play, regardless of how much capital is currently being mis-allocated. Meanwhile, we are constantly being told that the ensuing backup in rates will decimate non- yielding assets such as metals and other hard assets, ironically they fail to make the same distinction with these other effectively non-yielding assets.