Summary
I had the great pleasure of having breakfast the other morning with my long time friend, Mohamed El-Erian, former co-CEO of the bond giant, PIMCO.
Mohamed argues that there has been a major loss of liquidity in the financial markets in recent decades that will eventually come home to haunt us all.
The result will be a structural increase in market volatility, and wild gyrations in the prices of financial assets that will become commonplace.
We have already seen a few of these in recent weeks. German ten-year bund yields jumped from 0.01% to 0.20% in a mere two weeks, a gap once thought unimaginable. The Euro has popped from $1.08 to $1.03.
Since July, we have watched in awe as the ten-year Treasury yield ratcheted up from 1.23% to 2.40%.
The worst is yet to come.
It is a problem that has been evolving for years.
