Rather, the story is that households are being more prudent about debt and are
holding more liquid assets.
The main thing needed is to change capital standards at banks, and make
them hold more liquid assets, which will kill ROEs.
Not exact matches
More broadly, the regulatory agencies in the United States and the Financial Stability Board internationally have work under way focusing on possible fire - sale risk associated with the growing share of less
liquid bonds
held in
asset management portfolios on behalf of investors who may be counting on same - day redemption when valuations fall.
Facing redemptions of less than 2 percent of
assets, it's possible that many bond funds could have met redemptions simply by drawing down cash or other
liquid assets (after all, bond mutual funds
held more than $ 200 billion in short - term
liquid assets at the end of May).
The expectation, roughly, is that an increase in interest rates will allow the banks to earn
more on the
liquid assets they are
holding.
It is observed that lower rates mean lower borrowing costs or lower costs of drawing down
liquid asset holding making the purchase of capital goods
more attractive.
For those that want the quick hit and don't care about the underlying ideas, here is the main idea: A vehicle
holding assets may appear
more liquid than the
assets themselves, but that is onl...
In terms of how this relates to
asset allocation in retirement, if you are comfortable with any given 5 year period being slightly below breakeven on a worst case basis, you could consider having about 5 years» worth of expenses in
more liquid and safe
assets and have comfort that the rest of your portfolio in stocks will at least
hold their value pretty well.