Confidence in the Fed

I met my be-bop baby at the union hall
She could dance all night and shake the paint off the walls
But when I saw her smile across the crowded room, yeah
Well I knew we'd have to leave the party soon
As the band began to play out of tune
--Hooters

Important piece by Fleck that should be read multiple times by those seeking viewpoints on how a significant market decline could coalesce from here.

Central to his thesis is that confidence in the Fed and other central banks is currenly high, and declining prices would destroy investor confidence.

Confidence can be seen as faith in someone or something. In the Fed's case, confidence can be viewed as faith that the Fed knows what it is doing and that its actions will help deliver long term prosperity.

Surely, many of those currently invested in financial markets have confidence in the Fed.

However, there are surely also many invested in financial markets who have little confidence in the Fed. They have no faith that the Fed knows what it is doing or that it can deliver long term prosperity.

Why, then, are these folks invested in financial markets? Because they believe that Fed's inept easy money policies, while potentially ruinous to markets and economies over the long term, are a source of profits in the near term. They are employing the Chuck Prince strategy of dancing as long as the music is playing.

The confidence of this group manifests not in the Fed, but in their ability to exit the dance before the music stops.

The combination of both groups reflects moral hazard writ large--likely in epically large font.

From a timing standpoint, it seems that loss of exit confidence seems likely to precede loss of confidence in the Fed.

position in SPX