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Put very crudely, Nomura suggests that Powell is not willing to countenance a Fed stance that has enhanced systemic risk by blowing up a huge equity bubble — very interesting article, make sure to follow up the historical statements by Powell.
Nomura's
McElligott writes that "it is increasingly obvious to me that J. Powell believes that the balance sheet expansion has engendered excessive risk-taking and outright asset bubbles, which in-turn are likely the largest systemic risks to the US financial system."
If the Nomura strategist is correct, that would have epic consequences for a market which is convinced that it is only a matter of time before the Fed put is hit for the simple reason that... there is no Fed put. As McElligott concludes, "speculation has always been that Powell and Jeremy Stein were the “catalysts” behind what ultimately became the “taper tantrum” episode in 2013 as well—and as a smart client said last night, "Just wait until the 2013 transcripts come out…the notion of the policy put is sorely mistaken."
The good news is that once the current pension fund reallocation concludes and the bear market rally ends and the vicious selling resumes, Charlie's theory can easily be tested if when the S&P drops back below 2,400.... then 2,300.... then 2,200... then 2,100 and 2,000... Powell still does nothing - much to the fury of President Trump - then yes, it will indeed be the case that any hopes for a Fed put will have been "sorely mistaken."
The source. (Emphasis added)
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