Markets Without Havens Are Becoming All Too Real
The notion of risk-free assets is a cornerstone of portfolio investing, but what if risk-free assets no longer exist?
Wall Street havens are disappearing.
Photographer: Timothy A. Clary/AFP via Getty Images
In Lewis Carroll’s classic children’s book, Alice’s Adventures in Wonderland & Through the Looking-Glass, Alice says, “If I had a world of my own, everything would be nonsense. Nothing would be what it is because everything would be what it isn't.” For financial market participants, that world Alice envisioned has become a reality.
After almost two decades of quantitative easing by the world’s major central banks, investors find themselves deep down the rabbit hole. The more than $16 trillion of bond and stock purchases by central banks since the financial crisis alone has artificially boosted asset prices. Although these purchases bolstered confidence in the financial system, they failed to achieve their primary goal, which was to spark faster inflation.