FT quotes Citi credit Strategist Matt King.
"For me, a lot of the snag is that markets simply don’t price liquidity correctly. Yes, we ought to add in an illiquidity premium and not buy when stuff is expensive, but everyone is a slave to short-term performance, so they buy in anyway, and only get blown up later.
Hence much of the difficulty both around QE exit and with all the regulatory steps we’re taking at the moment is that the risks don’t show up immediately. By making markets less liquid, by making the investor base more homogeneous, by limiting dealers’ (and everyone’s) ability to take risk, what you end up with is a fake market. At the moment volatility is suppressed, but tail risk lingers on. The volatility you see is not the risk you’re taking. And precisely because you don’t see it, you’re encouraged to take still more risk (or at least, not to hedge). The lack of market reaction in the run-up to the debt ceiling is an obvious case in point.
Hence while it’s often difficult to put a finger on this stuff, and while the bubbles may not yet be too pronounced, and yes, perhaps the alternatives are worse, we do end up with many of the misgivings you cite, and I do think the drawbacks are larger than are commonly acknowledged. Perhaps the most obvious example is the way that my client base are all buying but with minimal conviction (and certainly not because of fundamentals), and all hoping to be first to the exits later."
Good luck with that....