FAST FIVE: El-Erian: "Markets Are Exiting Artificial Regime" That Fed Supported For Far Too Long
Yet three are already evident.
Second, after tracking equities lower and, in the process, experiencing historic losses, government bonds are resuming their role of risk mitigators in diversified investment portfolios.
The market selloff started with surging “interest rate risk” because of inflation and the sluggish policy reaction function of the Federal Reserve.
The more these two risks persist, the greater the threat of unleashing the third, more damaging risk factor: stress to market functioning.
For long-term investors, it will prove beneficial over time that markets are exiting an artificial regime that was maintained for far too long by the Fed and that resulted in frothy valuations, relative price distortions, resource misallocations and investors losing sight of corporate and sovereign fundamentals.