Central bank policies to combat the negative economic impact of a Global Pandemic and, previously, the Global Financial Crisis have caused the markets to be “flush with liquidity.” These policies have driven equity valuations to historic highs, fixed-income yields near all-time lows, and credit and other spreads near historic lows. In this period of extremes, it is apt for us to take a pause and review both the real meaning of liquidity and the underlying qualities of portfolio assets.

The “go-to” assets for liquidity in today’s markets are cash equivalents, fixed income, and equity securities. Cash equivalents are expected to provide a safe harbor, shielding money from market risk. Fixed income is expected to provide liquidity, safety, and income. Equities are expected provide long-term growth, supplemented by dividend income. In this paper, we propose that these expectations may be flawed and susceptible to change due to ongoing, extraordinary central bank policy and the possibility that these efforts may ebb or even reverse in the coming years….