A Hard Rain’s a-Gonna Fall
The comments below are an edited and abridged synopsis of an article by Adam Taggart
As the Fed kicked off its second round of QE 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 said, “You gotta love a put,” referring to the Fed’s willingness to print trillions of dollars to backstop the economy and financial markets. Nine years later, we see that Tepper was right.
The world’s other central banks followed the Fed’s lead. The ECB’s Mario Draghi declared a similar ‘whatever it takes’ policy and has printed nearly $3.5 trillion in the past 3 years. The Bank of Japan has intervened so often 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 force-feeding of stimulus into the global system, and it hasn’t diminished since the Great Recession. In fact, the most recent wave from 2015 to 2018 has seen the highest amount of injected ‘thin-air’ money ever.
In response, equities have rocketed past their pre-crisis highs, bonds have continued to rise as interest rates stayed low, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.
Everyone learned to love the ‘Fed put’ and stopped worrying. But what’s coming next will change everything.
Taggart discusses the approaching deluge, and the appropriate actions to take.