Brewing the Perfect Storm

This article is written by Andy Sng(Assetia Asset Management) on what he thinks of the market.

I expect the ABCS market to remain tight as investors shun risk from asset backed commercial papers. Billions of ABCP may need to be rolled over in the next few days or weeks. This jitter could spill over to other assets if sustained .
This means that the short term credit market (and borrowing costs) will remain nervous, prompting central banks to continue injecting liquidity to tamper this burden (and encourage confidence). However, sustained injections and FED cuts (if any) will lead to stabilization of the markets but the price of inflation will have to be paid down the road. Also, the injection may find its way to provide more easy credit to areas not intended for.
What is worrisome is the perceived certainty of central bank intervention that encourages unwarranted risk-taking. Not too long ago, investors will not bat an eye to take on additional risk in order to earn a mere 20 basis or so more. Today, borrowers are crying at having to pay 80 basis more and still not attracting investors. What about paying a “reasonable” price for risk-taking, like 300 basis or 500 basis more? No, scream loud enough (“or be too big to fail”) and FED will come to the rescue. Stocks markets had hardly given up its gain this year when the world “swoon”, and looked to FED for action. It seems that central banks have become “Guardians of asset prices” or “Asset reflators” of the new world .

This reminds me of childhood times when “Daddy” always have more money no matter how we spend them. So spare the rod and spoil the child – we are brewing a perfect storm