Risk can be disguised or hidden, but never eliminated. From Charles Hugh Smith at oftwominds.com:
A funny thing happened on the way to a low-risk environment: loans in default (non-performing loans) didn’t suddenly become performing loans.
If we had to summarize what’s happened in eight years of “recovery,” we could start with this: everyone’s been pushed into risky assets while being told risk has been transformed from something to avoid (by buying risk-off assets) to something you chase to score essentially guaranteed gains (by buying risk-on assets).
The successful strategy for eight years has been buy the dips because risk-on assets always recover and hit new highs: housing, stocks, bonds, bat guano futures–you name it.
Those who bought the dip in hot housing markets have seen spectacular gains since 2011. Those who bought every dip in the stock market have been richly rewarded, and those buying bonds expecting declining yields have until recently logged reliable gains.
The only asset class that’s lower than it was in 2011 is the classic risk-off asset: precious metals.
Investors who avoided risk-on assets–stocks, bonds, REITs (real estate investment trusts) and housing in hot markets–have been clubbed, while those who piled on the leverage to buy every dip have been richly rewarded.
Those who bet volatility–once a fairly reliable reflection of risk–would finally rise have been wiped out. By historical measures, risk has fallen to levels not seen since… well, just before the last Global Financial Meltdown.
Globally, financially assets have soared from a 2008 low around $222 trillion to over $300 trillion. Even in today’s financially jaded world, $80 trillion is an impressive number: over 4 times America’s GDP of $18 trillion annually, and roughly equal to global GDP.
To continue reading: Now That Everyone’s Been Pushed into Risky Assets…