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Nothing left to buy - Algebris Silver Bullet

One of the premises for central bank action in the last decade was that lowering the cost of money and the return on risk-free assets would push investors to dump these and buy higher return riskier assets instead. In turn, this would funnel fresh capital to firms, boosting business investment and growth.

After a decade of quantitative easing and declining nominal and real interest rates, this substitution effect isn’t working as planned: assets with a direct link to interest rates continue to outperform vs assets whose performance depends on economic growth.

Investment grade bonds and double-B high yield paper are at record tight spreads vs lower rated high yield firms, gold is at a record high vs copper, large firms and tech/growth stocks continue to outperform vs small caps and value equities.

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