Holiday Conditions and Record Equities Remind of Bigger Liquidity Risks

Talking Points:

• Liquidity and market risks are different threats to the financial system

• Events like a Fed hike, China slump or 'Grexit' are market risk; the 'absence' of a market is liquidity

• Excessive risk taking, one-sided markets and stimulus-distorted havens threaten deeper risks Want to develop a more in-depth knowledge on the market and strategies?

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If capital markets correct under risk aversion - inevitable over a long enough period - will the retreat be orderly or chaotic? There is usually at least a little panic in a bearish phase after a long build up, but conditions behind the current six-year bull trend suggest there may be more acute trouble when speculative appetites cool. Liquidity risks may have been fostered by the aggressive risk-taking and incredible policy intervention through these past years. We've seen how important liquidity is in the post-Lehman collapse and SNB's withdrawal of its exchange rate floor. But, what happens when the traditional outlets for safety are distorted? We consider the risks - and perhaps some opportunities - of liquidity issues in the unavoidable, next market bear wave in this weekend Strategy Video.

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