The “Keynesian put” is a put option named after economist John Maynard Keynes (1883-1946) and Keynesian economics. Investors believed that the Federal Reserve would protect their investments with capital infusions (such as quantitative easing), as if investors had a put option.
“The central bank put is giving way to the ‘Keynesian put,’ according to Bank of America Merrill Lynch,” wrote Luke Kawa on Bloomberg.com on August 22, 2016, in an article titled “BofAML: These 35 U.S. Stocks Will Benefit From a Sea Change in World Politics; Get ready for the Keynesian Put.”
“Greenspan put"/"Fed put” (after Federal Reserve Chairman Alan Greenspan, from 2000), “Bernanke put” (after Federal Reserve Chairman Ben Bernanke, from 2003) and “Yellen call” (after Federal Reserve Chairwomen Janet Yellen, from 2014) are similar terms.
DEFINITION of ‘Keynesian Put’
A Keynesian Put is the expectation that markets and the economy will be supported by fiscal policy stimulus measures. Fiscal policy stimulus, including reductions in taxes and increased government spending, are generally aimed at giving a direct boost to the real economy, although financial markets should also expect the indirect benefits of strengthening economic growth.
Wikipedia: Keynesian economics
Keynesian economics (/ˈkeɪnziən/ kayn-zee-ən; or Keynesianism) are the various theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.
The theories forming the basis of Keynesian economics were first presented by the British economist John Maynard Keynes during the Great Depression in his 1936 book, The General Theory of Employment, Interest and Money. Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book. The interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy.
BofAML: These 35 U.S. Stocks Will Benefit From a Sea Change in World Politics
Get ready for the Keynesian Put.
August 22, 2016 — 7:46 AM EDT
The central bank put is giving way to the ‘Keynesian put,’ according to Bank of America Merrill Lynch.
With long-term borrowing rates for most developed nations sitting near record lows, and the potentially perverse effects of lowering rates below zero widely on display, a growing chorus of economists have made the case that governments should work harder to support slow-growth economies by spending more money.
If stock investors are hoping for a “Keynesian Put” they will be sorely disappointed. It may well not come and does not have them in mind.
7:07 AM - 22 Aug 2016
fastFT (Financial Times)
MARKETS Investors should prepare for ‘Keynesian Put’ – BAML
August 25, 2016
Analysts at Bank of America Merrill Lynch have coined the term “Keynesian Put” – the implicit promise that fiscal authorities will spend more in a bid to keep growth and inflation humming along in the global economy, writes Mehreen Khan.
It follows on from the two decade long “central bank put” – where monetary policy has been kept accommodative to spur along growth, propping up risk assets. The term was first coined to describe Alan Greenspan’s Federal Reserve, which frequently responded to tumult in the financial markets by trimming interest rates.
“Central Banks Now Own $25 Trillion Of Financial Assets”
by Tyler Durden
Aug 25, 2016 10:02 AM
... here is a quick reminder of where we currently stand from BofA’s Michael Hartnett, from a brief note titled The Liquidity Supernova & the “Keynesian Put.”
Risk assets are now supported by the new ”Keynesian Put”, the expectation that fiscal measures will be deployed to combat any renewed weakness in the economy/markets (independently of any larger political projects). But asset prices remain primarily supported by excess monetary abundance across the world:
1. There have been 667 interest rate cuts by global central banks since Lehman;
2. G7 central bank governors Yellen, Kuroda, Draghi, Carney & Poloz have been in their current posts for a collective 17 years, yet only one (Yellen in Dec’15) has actually hiked interest rates during this time;
3. Central banks own $25tn of financial assets (a sum larger than GDP of US + Japan, and up $12tn since Lehman);
4. There are currently $12.3tn of negative yielding global bonds (28% of total);
5. There is currently $8tn of negative yielding sovereign debt (54% of total).
The Keynesian Put: New Support For Asset Prices
By Matthew Johnston | August 25, 2016 — 5:00 PM EDT
The Keynesian Put
The term, which highlights the theories of the early 20th century British economist, John Maynard Keynes, is a play on the Greenspan Put, a term coined in 1998 characterizing the extremely accommodative monetary policies of then Fed Chair Alan Greenspan. The low interest rates served to flood markets with an abundance of new money, helping to support asset prices, a phenomenon that also characterizes the most recent market bull-run since the 2007-2008 global financial crisis.
New York City • Banking/Finance/Insurance • Saturday, August 27, 2016 • Permalink