RISK | Here Be Dragons: The Hunt for Yield

Higher financial risk is associated with higher expected return.
But our highest, least-risky returns may be closer to home -
save energy costs by adding insulation, using passive solar etc.

Two stories today in the NY Times show how in the zero-interest-rate environment the quest for higher returns creates a potentially disastrous reliance on leverage.

Last week's continued stock market correction add up to an ebbing tide that is uncovering some of the risk.

Vague Disclosures by Highflying Mutual Funds May Put Investors in Peril

By GRETCHEN MORGENSON

Leveraged loans, a kind of obligation held by floating-rate income funds, carry risks that are often not fully disclosed to investors.

An Internet Mortgage Provider Reaps the Rewards of Lending Boldly

By PETER EAVIS

Bank of Internet USA, which has extended big loans to high-earning people other lenders might shun, has been making profits, and setting off alarm bells.

I posted something on the risks of leveraged loans on November 5 last year.