Tuesday, April 10, 2007

Europeans flock to free lunch

WSJ piece today "European Investors Travel Less-Risky Route" http://online.wsj.com/article/SB117616788952164632.html?mod=rss_markets_main
is a reminder that much of the toxic waste derivative products (CDOs) are being bought by European individual investors:

Some of the hottest investment products in Europe are absolute-return funds, which aim to deliver positive returns in both rising and falling markets using derivatives, short selling or hedging. Many were launched last year, but it is too early to tell whether they are more than a passing fad.

Also in the limelight across Europe are money-market funds, reliable for investors seeking a haven from volatile markets. Grabbing particular interest are some new money-market funds that try to achieve higher returns than traditional ones

At some point Guido or Rolf or Pierre are going to wake up and find out that the AAA rated guaranteed return product they invested in is a rat's nest of sub-prime mortgage-backed bonds leveraged 30x. Then their education in the laws of risk & return will accelerate. One assumes their appetite for such broker-flogged free lunch funds will disappear. When demand for "junk-backed AAA-rated" bonds plummets then a pillar of the abundant credit environment will crumble.

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