A Hard Rain’s a-Gonna Fall
Après moi, le déluge
~ King Louis XV of France
A hard rain’s a-gonna fall
~ Bob Dylan (the first)
As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.
“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”
He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.
Nine years later we see that Tepper was right, likely even more so than he realized at the time.
The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.
It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:
In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.
And everyone learned to love the ‘Fed put’ and stop worrying.
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