In this interview Mr Summers goes on to highlight that a lot of bad news has already been priced into markets that were mentioned in the media over the last few years as representing bubble risks. He cites commodities, emerging markets and high yield debt as examples of markets that have already contracted substantially and therefore have already priced in the effects of a first rate hike.
That makes sense but the thing about bubbles is they are seldom recognised as bubbles before they pop. This is why it is so important to monitor many different markets and not just those grabbing media attention at any given time.
For example the Fed has a very large number of bonds sitting on its balance sheet that will reach maturity between 2018 and 2020. It is an open question what they are going to do with them when they mature. Will the liquidity simply be drained from the system or will they seek to refinance at potentially much higher levels? That suggests a much higher risk than anything that was spoken about in the interview at least to this observer.
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