Are investors' appetite for risky assets growing? Sure seems like it.
Dick Bove, of Rochdale Securities, puts out interesting research, and he is outspoken and often contrarian. (In an interview with me, Bove even defended Stan O'Neal, who was then still at the helm of Merrill Lynch.) Here though, in a research note, I think he echoes what many divine by recent market action. The FT recently reported that foud that even insurance companies are increasing their exposure to high-risk assets.
Here are Bove's comments below:
My database on junk bond yields only goes back to October, 2002. Therefore, it is not the best series I have developed.
What stands out at the moment, however, despite the limited scope in the database, is that junk bond yields hit 7.0% today. They were never at this level before from 2002 to the present.
To me this suggests that investors feel a need to get a higher return on their cash hoards. Simply seeking safety in Treasury securities is not meeting the need of investors. Thus, the piling into junk bonds.
It is a short step from there into common stocks. In the case of banks, if investors choose to look, profits are very high and valuations are very low."