Holy crap... Bank of America and Citigroup just called out the Fed Put. It's been an open secret for years, but I never thought I'd see a bank actually say it.
http://www.zerohedge.com/news/2017-12-0 ... ct-markets
BofA summarizes, "In every major market shock since the 2013 Taper Tantrum, central banks have stepped in (even if verbally) to protect markets. Following the Brexit
vote, markets no longer needed to hear from CBs as they rebounded so quickly that CBs didn’t need to respond. Buy-the-dip has a become a self-fulfilling put"
BofA explains:
The Fed put strike is falling with rising rates even if markets don’t realize it. As our Head of Global Economics, Ethan Harris, has pointed out, sitting at the lower bound in rates put the Fed in risk-management mode, meaning they had to be ultrasensitive to the risk of making a policy mistake as they had no traditional ammunition to fight a potential downturn. But as the Fed gradually increases rates, and with markets seemingly unconcerned, they will inherently become less sensitive to risk. In other words, the Fed put strike is falling both because the Fed is rebuilding ammunition, and because it recognizes that markets can better stand on their own. Of course surprise inflation remains the real killer as it would effectively handcuff the Fed from providing a high strike put, and will require much higher stress before they can step in.
However, we still need to see a shock to know where the Fed put strike is. Just because the Fed put strike is falling with rising rates doesn’t mean markets will recognize it until there is a shock of sufficient magnitude to test it. And while Powell is believed to have a largely similar policy stance as Yellen, until we see how he (and his new committee) react to financial stress, it’s hard to know exactly where the Fed put strike sits. This fact, along with the uncertainty of when we see a sufficient shock to test the Fed, makes calling an end to this environment difficult. For example, in 2017 the strong buy-the-dip mentality, and arguably solid fundamentals, prevented the Fed from being tested.
This is a turning point...