Listen to Buffett – this too will end

Chairman, Wilson Asset Management
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In recent months I have written about the developing bubble in (perceived) safe, high yield securities. Unfortunately this month I find my self more concerned than ever.

US interest rates have been at unprecedented lows for what is now a prolonged period of time, despite the US experiencing a gradual economic recovery, and investors are starting to herd. The flow of funds to relatively higher-yielding investments has become a torrent. Junk bonds in the US are trading at all time lows against government treasuries and the Dow Jones is at all time highs.

The Australian market is behaving in sync. Stocks that pay high dividend yields, and are perceived to have pricing power in their business model, are trading at, or close to, all time highs.

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