The Fed Put is Ka(Put)

March 2022
Think Pieces

Black Swans are a rare species.  Black Swan events are labeled as such to highlight their unpredictable origin, the improbable convergence of circumstances spawning such events, and the intrinsically uncertain nature of outcomes.

Alas, Black Swan events appear far less endangered than the designation conferred on the protected waterfowl.

In twenty-four months, we’ve experienced successive mind-numbing episodes: the global COVID-19 pandemic, and now, Russia’s inhumane invasion of Ukraine.  It is little wonder that mental well-being is a critical public health crisis.

While the Swans wade in separate lakes, the stream connecting them is inflation, the severity of which world economies have not experienced for four decades.

Financial markets are attempting to process and discount potential outcomes.  A safety-net long relied on by equity market investors – notably those who embrace momentum as a factor – is the so called “Fed Put”.

Considering conditions then (March 2020) and now, the persistence of inflation renders the Fed Put impractical and even counter-productive, a tool stowed for some other day.

The Fed Put appears KaPut.

To read more, download the full thought piece here.