Would you lend money to someone who had to borrow to pay you interest on the loan, and when the loan period is over has to borrow in order to pay you back?
This person has so much debt that it is impossible for them to ever pay it back. Is that a safe bet? Just replace the person with sovereign nations and we are now talking about the bond and gilt markets. When the music stops what do you want to be holding? Apparently, according to all asset allocation models out there, the lower the risk the client wishes to take, the more you give to those nations that have no way of paying debt but to borrow. It is complete and utter madness.
What is the alternative? I have absolutely no idea. The bond party will end at some time, when it does are we prepared for those discussions that we will be having with our clients? Or will it be a case of ‘no one could possibly have seen this coming’. Are we responsible? Is it the regulator? Or is it the client? Am I scaremongering or quite simply highlighting that the emperor has no clothes?
Nigel Tinsdale
Financial adviser,
Tinsdale Investment Management,
Bewdley,
Worcestershire
