Market Overview Q314: The Fed’s Magic Act and the Reappearance of Risk

An important effect of quantitative easing is that it makes risk seem to disappear for a period of time. Much like in a magic show, the disappearance of risk is illusory. Now that the quantitative easing show is coming to an end, investors will need to incorporate the reappearance of risk into their decision making. Although efforts to maintain illusions will persist, they are only illusions. As a result, it will be increasingly important to be able to identify asset prices fully discounted for risk.