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This summer marks a decade since the first stirrings of the global financial crisis. A lot of water has flowed since two hedge funds backed by Bear Stearns collapsed in July 2007 because of their exposure to US subprime mortgages. For investors the defining outcome has been the presence in financial markets of central banks and their bulging balance sheets. While the markets fixate on the outlook for growth and inflation, the prospects of the Trump trade, China's credit bubble and eurozone politics, the steady expansion of central bank balance sheets via quantitative easing keeps equities at record levels and risk premiums negligible.This year alone, says Bank of America Merrill Lynch, central banks have topped up the financial system's "liquidity punchbowl" by $1.1tn.Returning to today, one of the most striking examples of central bank-inspired market dysfunction is the low equity risk premium.
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