"What’s really eating at markets? 
Last week’s little panic is already retreating into the distance. Markets are bouncing back and the "buy the dip" mentality is reaffirming itself as the only game in town. 
But while I don’t think we’ve seen the top, I do think that something important shifted last week.
Let’s dig a bit deeper..."

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"For example, if you’d realised – as was pretty obvious at the time – that the underlying problem during 2007 was that the US housing market was infecting the credit markets, then you could have kept an eye on that rather than blithely regarding every fresh banking scandal as a buying opportunity.
Today, the surface issue is volatility. Markets have spent a long time assuming that volatility would be kept low. Those bets have been more or less explicit – spread betting the Vix is a very obvious bet on volatility remaining low, whereas being leveraged long equities is a less obvious bet on volatility remaining low. But they are both "low-vol" strategies.
But why the fondness for betting against volatility? Relentlessly rising markets have encouraged investors to make ever bigger bets. And make no mistake, the rise has been relentless..."

 "And what is all of that down to?
Central bank policies, of course. And the "Greenspan put", specifically.
The death of the Greenspan put
When Alan Greenspan was boss of the US Federal Reserve, he made it policy to bail out stockmarkets every time they looked like they were going down. He did so by cutting interest rates.
Ben Bernanke carried on the policy – when he couldn’t cut interest rates enough, he printed money instead. And Janet Yellen took up the torch after him..."
"And the nice thing for financial markets is that money-printing is good for them. The rest of the economy can be wading through quicksand, but as long as they’re mainlining quantitative easing, then they’ll keep going up.
Inflation, on the other hand, is easy for central banks to tackle (or so the economists keep telling us). They just raise interest rates.

Trouble is, that’s not so good for financial markets. Higher interest rates means tighter monetary policy which means less money to flow into financial assets. In an over-indebted economy it also means margin calls, and unaffordable interest bills. 
And it means something else. Inflation means the Greenspan put is no longer in play. When inflation becomes the enemy, the only solution is tighter monetary policy. And that means that the main thing underpinning bets on low volatility is in danger of being kicked out from under the market.
The risk now is that you get into a positive feedback loop ("positive" makes it sound like a good thing, but it’s not – it just refers to a process that is self-amplifying rather than self-negating). So a jump in volatility begets more volatility as investors are either forced out of positions, or opt to get out of positions..."

 "I expect inflation to ‘run hot’
And this is why I think we’re still to see the true top for this cycle. Because I don’t yet think the Fed will have entirely given up on the Greenspan put.
Regardless of how tough Jerome Powell thinks he is, he is unlikely to want to go down as the man who ended the bull market prematurely. So I would still expect him to tolerate more inflation than markets perhaps expect right now – especially if stockmarkets continue to swoon every time the economic data is a bit better than expected..."

 Complete article was originally published on MoneyWeek.