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2020-

2020--03-17 b
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,

Investors perception of the Fed’s role in fueling rallies, micromanaging the markets and providing a safety-net whenever stocks fall, has reached a critical tipping point. For the last decade, the Central Bank’s low rates, endless liquidity and frequent interventions have conditioned investors to ignore fundamentals and, instead, base their decisions on the Fed’s accommodative policy. Thus, when the Fed trims its balance sheet to reduce its cache of Mortgage-Backed Securities (MBS), investors “sell” and when the Fed provides $400 billion in low interest loans to borrowers in the repo market, investors “buy”. Coronavirus’s impact on stocks has eroded confidence in the Fed and is gradually reversing years of Pavlovian conditioning that fostered a belief in the Fed’s omnipotence. This is no small matter. When investors finally realize that the Fed has lost control of the system, stock prices are likely to fall sharply. And, with all three main indices having tripled in the last decade, there’s no telling how low prices will go. (source)

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