When cautious-looking investments are the riskiest option

When can a famine taste pretty good? The answer is when you are eating the cattle which have just died of thirst. And that’s where we are today in the investment market. The famine is a lack of income — cash held in a completely safe bank, or in short-term government securities, earns almost nothing. Where’s the feast? The answer is in yield-bearing investments, into which savings are pouring — they produce a modicum of yield, to be sure — but that is dwarfed by the capital gains which have accompanied them. Those who have already made this switch are understandably rather pleased, and often rather pleased with themselves. Both of these could prove to be an error; the ‘safety’ of cash held risklessly on deposit has the silhouette of the frying pan, and what goes up has a habit of burning up, too.

The lack of income opportunities has not occurred by chance — it has been engineered by central banks around the world (literally so, now that Japan has joined in) and it is intended to transfer wealth from the saver, who receives an inadequate return, to the borrower, who correspondingly pays an inadequate interest rate.