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Alternative Market Briefing

The market may be forcing us into more illiquid situations

Thursday, October 25, 2012

Benedicte Gravrand, Opalesque Geneva:

Participants at the recent Opalesque New York Roundtable discussed whether now is the right time – just as liquidity is being injected into the markets – to invest in illiquid instruments and add leverage, or whether one should sit and wait. Opinions were divided – although all agreed there are few investment opportunities these days.

"Quantitative easing by the Fed and other central banks recently has injected a huge amount of liquidity into the markets," said Ron DiRusso Head of Investment Research at FX Concepts, a $3bn hedge fund firm. "That liquidity should be good for risk-seeking markets, probably at least through the end of 2012."

But beyond that, he added, markets will realise global economies are not responding to policy moves. That’s when it will become interesting and when the recent move in risky assets should reverse.

Add to that the potential fiscal cliff in the U.S. and a worsening European recession, and you will get a stronger U.S. dollar, he believes. The U.S. fiscal cliff refers to a large predicted reduction in the budget deficit and a corresponding projected slowdown of the economy if some tax hikes and spending cuts are allowed to expire or go into effect at the beginning of 2013 (here are some ......................

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