Evercore: If Markets Drop More, Don’t Expect To Be Bailed Out By The Fed This Time
by Tyler Durden
ZeroHedge.com
May 18, 2017
When we were discussing the self-reinforcing dynamics of vol-neutral funds yesterday, which may or may not continue selling today depending on what the VIX does, we concluded that aside from the decision-making mechanics of systematic funds, the biggest question would be if the Fed, or other central banks, do not do step in to prop up the market as they have on every other similar occasion in the past 8 years.
Would that imply that traders – be they CTAs, risk-parity, or simply carbon-based – are finally on their own?
According to a follow up note sent overnight by Evercore ISI’s Krishn Guha, the answer is yes… at least for the first 10% of any upcoming market drop. As Guha writes, “with the US equity market sell-off intensifying Wednesday afternoon, a number of clients have asked at what point the Fed would ride to the rescue. Our answer is that this time the cavalry is not coming — at least not unless we see something much larger — at least a 5 – 10 per cent type correction and maybe not immediately even then.
Clients need to rely on their own hedging and risk management strategies, not assume a public put that is anywhere near the current spot price. Indeed Fed officials might even welcome (within reason, it would be unwise to push this too far) the opportunity to disabuse the markets that such protection exists.
Somehow we doubt that after 8 years of propping up market, the Fed will suddenly walk away, but who knows: maybe this time it is different.
The Rest…HERE
