Navigating A Troop of Gorillas
With the birth of the so-called “Greenspan Put,” the 800-pound gorilla of U.S. monetary policy unleashed itself on capital markets. Today, there is not just one 800-pound gorilla harassing capital markets; there is a troop of gorillas. In our view, easy monetary policies and the resulting malinvestment have prevented fundamentals from fully exerting their influence on prices for more than a decade. As central banks now embark on a disjointed unwinding of their balance sheets, we add to these uncharted paths material concerns about the proliferation of rules-based strategies, the Volcker Rule, and uncoordinated circuit breakers. The ultimate compounding effects of these are as of yet unknown; it is hard to see how it can end well, but the likelihood of market disruption is elevated.
