Despite rocketing highs, it's still a dog-eat-dog universe
But can you hear that niggle in the back of your investment brain that says, "This is ridiculous"? Can you hear Mr Spock telling Captain Kirk that the Starship Dow Jones is at risk of losing propulsion because it has reached the limits of the known universe on one millionth of the delusion that fuelled its visit there five years ago?
Can you hear the voters in the US, Germany, Greece, Spain and Italy telling you that while the central banks have pandered to the financial market's immediate concerns about the risk of a financial-market-busting "debt event" they have done almost nothing to address the real-life issues, like 55 per cent unemployment in some segments of the Spanish economy.
Can you hear the truth that in their rush to Band-Aid the short term with quantitative easing, operation Twist, asset purchases, interest rates at zero, the Greek bailout, the ECB's public commitment to the euro, the OMT program and the LTRO lending program the central banks have curiously bypassed the need to formulate a long-term credible solution that addresses the core issues?
And can you see the perversity of their efforts, that rather than secure the financial markets the focus on the short-term risks has actually left the long-term security of investors hanging by a thread?
For now the markets may be comfortable that no individual European economy is going to blow up tomorrow and they may even have developed some faith that ultimately a combination of austerity and economic growth will prevail where deferring the issue and printing money has not.
But the question is: "When will the world be fixed?" And the answer is, not for a long, long time. The day investors can once again assume the market always goes up and be right is far, far away and is not going to arrive without a lot of market busting "events" along the way. Elevated financial market risk is now the new norm.
This is why a lot of investors, despite the rise we've seen recently, simply don't trust the market as it hits a 4-year high in Australia and an all-time high in the US . That's why the "safety bubble" is not deflating but inflating (banks were flying again this week) and it is why the mantra of the sharemarket has become and will remain:
■Don't bother making grand declarations about the long term.
■Make as much money as you can when the market is running.
■Get out when it isn't.
The risk in the current market is that investors forget the lessons of the GFC and start to adopt a "Set & Forget" approach to investing again. But this is not the debt boom, this is not 1974 to 2007. This is different, this is the post-debt boom era of debt aversion.
Post-2008 there are no more idiots empowered by leverage and blinded by assumptions who are ready to buy your stocks off you at a higher price. Post-2008 there is no longer an excuse for buying forever and forgetting to keep watch.
The next decade is going to be a very different investment environment to the cosy years pre-2008 and making money in equities is not going to be easy again, it's going to be tough. You can't trust the market, you can't believe advice based on conveniently optimistic long-term assumptions, you can't "just invest".
Until the kids we are packing off to primary school this year start earning money, start investing, take out 95 per cent mortgages, leverage into equities and lose their heads without the memory of the GFC to guide them we are going to be scrapping among ourselves for a dollar. Until the reappearance of irrational exuberance we are back to picking stocks, timing stocks, taking profits easily and taking losses quickly. There is no longer a return without effort. It's war.
Of course, if you can't bother making the effort and want to set and forget, please go ahead. It'll give the rest of us someone to carve up.
Frequently Asked Questions about this Article…
The article notes markets like the Dow and the Australian market are at record and multi‑year highs, and volatility measures (for example the VIX) and some credit spreads look calm. But central bank stimulus has largely patched short‑term market fears without fixing deep real‑economy problems (such as very high unemployment in parts of Europe), so many investors believe elevated market risk is the new norm and remain cautious.
According to the article, tools like quantitative easing, Operation Twist, asset purchases, zero interest rates, LTRO and the ECB’s OMT have steadied financial markets in the short term. However, those measures have often bypassed long‑term structural solutions, meaning short‑term calm doesn’t equal lasting safety for investors.
No. The article warns that the post‑2008, post‑debt‑boom era is debt‑averse and different from the pre‑2008 years. Investors are advised not to adopt a buy‑and‑forget mindset—returns now demand active monitoring, timely profit taking and quick loss cutting.
The article recommends a pragmatic, active approach: make as much as you can while the market is running, get out when it isn’t, pick and time stocks, take profits easily and take losses quickly. In short, don’t rely on optimistic long‑term assumptions—making returns will require effort.
The 'safety bubble' refers to investors piling into perceived safe assets and financial sectors as markets rally, inflating valuations. The article cautions that this bubble is not deflating but inflating, and long‑term investor security may still be fragile, so blindly chasing safety can be risky.
The article argues the world won’t be fixed for a long time. While markets may be comfortable that no single European economy will blow up tomorrow, lasting solutions to structural issues are distant, and investors should expect occasional market‑busting events along the way.
Post‑GFC there are fewer leveraged, blind buyers of stocks and a general aversion to debt. That means irrational exuberance is less likely to reappear soon and generating equity returns will be tougher—requiring skill, discipline and active decision‑making rather than relying on leverage or passive optimism.
The article offers a clear mantra: don’t make grand long‑term declarations; make as much money as you can when the market is running; and get out when it isn’t. Combine that with active monitoring, timely profit taking and quick loss cutting to manage elevated market risk.
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