A topic that has been beaten to death both on these pages and virtually in every other financial website, has been the remarkable complacency in markets manifested, among other things, by near record low realized and implied equity vol, coupled with a recent plunge (if subsequent rebound) in cross-asset correaltions.
Before you begin to mention the grandiose gains in the stock market since Obama took office, bear in mind a few things.
1. The Federal Reserve lowered interest rates to zero percent, making bonds and interest bearing accounts untenable for retirees, effectively forcing people into stocks. Also, the Fed's balance sheet went from ~$750b to $4.5t over that time frame -- rigging both equity, currency, and bond markets over Obama's entire 8 year term.
According to William Dudley, the president of the Federal Reserve bank of New York, we might see the Federal Reserve reducing the size of its balance sheet sooner rather than later. Whilst Dudley seemed to have been hinting at just letting the securities on the balance sheet mature and take the cash out of the market (rather than reinvesting the proceeds), this isn’t the only option on the table.
Once upon a time Washington was simple: on one hand you had Republican interests, on the other: Democrats, and inbetween them perhaps, the occasional independent or "green." Now... it's less simple. At last check, DC currently boasts at least nine different parties, groups, factions or ideologies. Which is why keeping track of who wants what, and how the various groups allign, in US politics has become quite complicated.
It may be the fastest transition from a "hawkish" to "dovish" stance by a Fed talking head in history, after New York Fed President Bill Dudley went from "it is important not to overreact to every short-term wiggle in financial markets" and predicting "gradual rate hikes for the rest of the year" yesterday after the close, to "the Fed is in no rush to hike" in an interview with Bloomberg this morning.