From Bernanke “put” to Yellen “call”

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From the WSJ:

For some investors, the Fed’s caution might bring to mind the late 1990s. Back then, traders became convinced that if stocks fell too hard, the Fed under then-Chairman Alan Greenspan would cut rates and stem losses. This earned the moniker the “Greenspan put.” It was as if the Fed had provided investors with a put option, which insures against losses.

But the Fed isn’t nearly as sanguine as it once was about the problems that can emerge if investors believe it is always holding a net. So while the Fed was rattled by the adverse feedback loops that took hold of global markets earlier this year, investors can’t count on it looking on with benign neglect as valuations get increasingly stretched.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.