LEVEL PLAYING FIELDS

You've no doubt heard of alternative medicine. Well, the hot Wall Street topic today is alternative investments. Not that they're all that new. Like most things in life their they have their seasons and this is one of them.

With the stock and real estate markets, thanks to ZIRP  and NIRP, bubbling along, yields are getting harder to find than a California virgin.

If there's a more politically correct state than California it's probably Massachusetts or some place like that. Well, the California State Retirement fund, like many of it's brethren, is looking for yield. Liabilities keep rising while returns keep shrinking. So the fund recently announced it was considering investing in tobacco companies owing to their decent dividends.

Now this is the equivalent of all the WSJ editorial staff suddenly declaring they love Donald Trump and sang the praises of his qualifications to be president from the beginning. No state was and still is more PC when it comes to smoking than California and their band of Brownistas in Sacramento. Tobacco stocks are not illiquid, but they're about as alternative for the PC crowd as alternative gets.

And like we noted, those liabilities keep growing while yields keep shrinking. If that reminds any of you of something called the Social Security system you're cooking with that non-polluting, PC stuff, natural gas. To use a time-worn description, you're right on.

There is the old saw politicians, socialists and bureaucrats hate: the greater the risk the greater the possible return. With riskless returns now zero or even negative in places like the EU and Japan, you can see the problem pension funds and big insurance companies face, but it applies to nearly everyone. With wages flatter than a new airport runway for decades and the phony central bank memes about inflation's nowhere to be found, liabilities continue to climb while yield shrinks when it comes to purchasing power notwithstanding all the deflationary nonsense central bankers spew forth.

For pension funds and those big insurers that's a form of inflation, not enough yield to cover future costs. A funding crisis is just another name for a shortage of cash flow. And that brings us to those alternative investments. But alternative investments are not without risks. Illiquidity, for example, as in trapped. Not easy to exit. Having to sell at below market value or for less than you paid for them.

Now you can bet politicians, bureaucrats and those of the fix-it-at-all-costs crowd don't care about these things. At least not now. So one might ask oneself what's one of the downers of these brilliant central bankers with their zero or negative interest rates offering little or no yield? It forces those who have a need to look around. Needs usually begets a sense of urgency as in haste can leave its wake.

It also should focus your attention with what's going on in the EU, in this case the mortgage market where at least one member, Denmark, has for four years seen lenders pay interest to borrowers owing to negative interest rates. Why is this important? Easy, a similar movement is threatening to spread throughout the EU led by consumer groups in Spain and Portugal.

The gist of the issue is when is a contract not a contract? The answer if bankers there prevail is equally simple. A contract is a contract only when the banking crowd says it is. Maybe not in your vernacular or mine, but in the system as it is, that's called a level playing field.