Anyone who has noticed how bond demand since 1Q 2007 has kept the U.S. retirement fund industry its asset acquisition in the black will understand that retail investors have not stopped clamoring for safe trading/investment instruments. A similar move is afoot in the ETF world, where bond ETFs now comprise 14% of all ETF assets – up from 5% at the end of 2006.
Wait a minute, are we not entering a growth stage that should favor stock demand? I have discussed in other blog entries how macro events are setting the stage for continued investor concern, but there is one new element that threatens for this negative spiral of investor confidence to continue. Banks, the traditional creators of financial instruments, are understandably in bunker mentality.
Yes, the Volker rule, stagnation in OTC derivatives regulations, ring-fencing plans in the UK, (out-of-touch) high-frequency trading/short-sell-bans rules from ESMA, and new rounds of bank recapitalization requirements seem to be having a bit of an impact on bank trading ops (JP Morgan, Goldman Sachs, etc).
