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Between 2008 and 2010, 72 financial institutions rated by Moody’s defaulted on bonds worth US$318bn. From 1983 to 2007, there were 96 financial defaults, affecting “only” US$46bn in debt.

Given the severity of the recent crisis, it follows that the prospects of recovery for creditors were dim. Indeed, loan holders recovered far less from defaulted debt during the recent crisis than over the previous 20+ years. On bonds, however, recovery rates were little changed from before. A larger than usual share of distressed exchanges—a discounted repurchase of bonds or substitution for a new set of securities—explains the boost to recoveries during the latest crisis (30% of 2008-10 defaults versus 10% in 1983-2007). In other words, creditors took what they could get from teetering banks before the borrowers went bust and potentially left them with nothing.

A new survey of investment fund distributors shows the enduring appeal of equities among European retail investors. According to Greenwich Associates, some 47% of retail assets are invested in equities in Europe. By contrast, institutional investors on the continent allocated only around 20% of assets to equities. This difference is particularly stark in Germany, where retail investors devote 66% of their portfolios to shares, versus an average allocation of only 7% among institutional investors in the country.

Roughly two-thirds of the fund distributors polled by Greenwich say that retail clients will boost allocations to emerging-markets equities over the next year. Other asset classes poised for growth, survey respondents say, are a host of alternative investments, including hedge funds and vehicles focused on commodities and infrastructure.

A Bloomberg story today asks whether Warren Buffett is worried about inflation. His company, Berkshire Hathaway, has reported a growing appetite for shorter-term securities recently, a potential sign that Buffett is anticipating income-eroding inflation and interest rate hikes in the future.

In absolute terms, over the past 12 months Berkshire added US$1.3bn to its holdings of fixed-income securities due in less than a year. At the end of June, these short-term securities accounted for 21% of the group’s bond portfolio, up from 16% the previous year.

Following soft growth figures and weak employment data, a majority of economists now believe that deflation presents a greater immediate threat to US economy than inflation. The “Oracle of Omaha”, as is often the case, appears to defy the conventional wisdom.

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