by Mark St. Cyr •
I keep hearing that the “Chicken Little’s” are once again being proved wrong. We keep being shown chart, after chart, after chart, after chart how the market recovers from perilous sell-offs. This is expressed as “proof” the “market” doesn’t want to go down, and has legs to vault ever higher.
Cause for concern is being dismissed by the hordes of next in rotation fund managers, economists, Ivory Tower academics, or Nobel Laureates as they themselves stampede to any available cameras, microphones, or keyboards that will quote them as saying “See…all that worrying is for naught. And expressing anything other is strictly for the gloom and doom crowd.” Which they then will triumphantly state: “Which has been wrong over, and over, and over again.”
My response is this: Then why is nobody buying it? (e.g., the market) Figuratively, as well as literally.
If one looks at any credible volume report, the participation rate as to those “buying” into these rallies, which by the way, are the result of a previous fall instilling (once again) a near death experience. It rivals that of a BLS report. i.e., great headlines – just don’t look at how many people are actually “participating.”
I have another question: Why can’t the markets proceed any higher than when QE ended in Oct/Nov of 2014? You know, if this is truly: a fundamentally based bull market that is.
Or, is it that – its fundamentally full of bull? I believe it’s a big-ole-pile of the latter, and little to none of the former.
Put a different way: Explain why does it take more central banker intervention, or the promise thereof, to stop these falls? If it were all “fundamentally” based on market principles, again, why is there a need or call for even more monetary interventionism? (i.e., negative interest rates, “helicopter” styled moves, etc., etc.)
Regardless of what is touted (or worse actually taught) as reasoning by this crowd. One fact remains: without the central banks it all falls apart, precisely for the reason that there is no fundamental reason for the markets to be at these heights to begin with. Period.
It’s all an illusion, and it gets proven more as fact every time there’s a hiccup. So much so that now if hiccups aren’t dealt with in immediate triage in the form of some ready to be administered monetary antibiotic. A little discomfort is primed to turn into a terminal failure.
Let’s all remember a few details that are quite conveniently forgotten by far too many…
In 2010 then Fed. chairman Ben Bernanke unleashed a policy of monetary intervention which only a few years previous would have been hailed as ludicrous by this same crowd now calling for more of the same. That intervention is now in the history books called quantitative easing (QE) and its raison d’être was for moving the capital markets.
Just imagine bringing up this issue, let alone proposing it circa 2006. i.e., The Federal Reserve along with other central banks around the globe should (and would) purchase government debt and other such vehicles in an ever evolving aggregate of instruments they deemed proper, at any time. I’m of the opinion (and with good reasoning) you would’ve had this same cohort of economists, academics, et all who are still vociferously calling for more, more, and more – laughing and deeming even the notion as preposterous. However, that is not where we find ourselves today. All that previous hilarity has now become accepted monetary policy
If one is to be truthful, looking at these same charts which are flagrantly used and pointed to in “mission accomplished” type fashion as to show the efficacy of monetary intervention, then I’ll agree; there is only one conclusion, and it’s called: perversion.
In 2010 thru 2014 with the introduction, as well as the reinstatement of further intervention (e.g., QE 2, 3, Twist, et al) the markets went on a rocket-ship ride straight up with nearly a correction. Ever! Then once QE was officially halted (but the tailwinds of “reinvestments” remained) the “market” has done nothing but stutter at best – and more than once – given way to panic-stricken sell-offs. It seems the “market” can rise no higher without further accommodation, nor remain there either.
There’s no fundamental market at work currently. Nor has there been since circa 2010. Only central bank adulteration. Period. Anyone arguing the opposite in my opinion: is naive at best, or, a charlatan at worst. The latest case in point: Brexit.
Once the Brexit vote crossed the wires the “markets” expressed its uneasiness with the results. Whether or not one agrees with the outcome is irrelevant to this discussion. What is relevant is the exacting reversal, along with its speed which is simply jaw dropping.
Remember when the ECB rolled out its latest propaganda how it was waiting in the wings to show just how “in control” it really was with its trading operations nerve center expose? Could one envision such a piece in, let’s say, 2006? Never-mind stating not only would it be a reality, it would be touted as both necessary, as well as a prudent piece of current monetary policy.
Last week showed you just how lifeless these “markets” truly are. There’s just no there – there. Only the central banks.
Once again in dramatic fashion the “markets” seemingly caught wrong-footed spiraled downward. And (once again) the futures markets here in the U.S. had a limit down event needing the circuit breakers to (once again) halt the momentum.
Say what you want about the severity or forcefulness of the initial reaction. One can argue till they’re blue-in-the-face on whether it was warranted. However, what can’t escape the light of scrutiny is just how perfectly, as well as the expediency to such a move was entirely erased. Not in months, nor weeks, but within days. Yes, one of the largest political upheavals in modern history that not only has the potential of changing everything, but rather, does change everything for the entire monetary makeup that is currently held – is completely erased near to the penny as if it never even took place? In my best English accent all I can say is – bollocks!
Markets just don’t work that way. Investing just doesn’t work that way. And sooner, rather than later, true price discovery will make its way back into these markets. And when it does, based on current fundamentals – it’s not going to be pretty at all.
Currently (once again) it would seem that central bank intervention has saved the day. Yet, to what extent and at what expense? It’s now grown beyond ridiculous to anyone with a modicum of business acumen. There’s just no way you’re going to get a sane business person to take chances needed as to help spur an economy in these conditions. The more these shenanigans play out – the more they’ll hunker down. The exact opposite of what the economy needs.
It doesn’t take too much brain power to conclude there has to be an end point to all this bizarro world of monetary intervention. At some point in the not so distant future these hiccups will in-fact turn from a momentary discomfort to an outright panic with terminal implications. Like credit card luxury living – everything appears just “fly” till one day just one late payment sends the whole ruse tumbling into oblivion. Today’s central bank policies aren’t all that much different.
All it will take is just one time, or one player to upset this apple cart of illusion which is desperately being maintained, and it all unravels. And as I’ve iterated many times previous I believe that player is China.
As central banks keep intervening mightily within the capital markets as I have stated before: to think China will idly stand by and just “suck up” the consequences of those actions is a fools game. And as proof I would like to point out that as the central banks were busily propping up the markets before, during, and after the Brexit vote. China (once again) devalued the Yuan in a move not seen, and reminiscent in size and scope of August last year. You know, when everything was seeming to come off the rails – once again.
It would seem central banks from the ECB to the Fed. want to perpetuate the illusion that their approach is what’s going to be the only acceptable means of the day, tying every other nation up into monetary knots resulting in them needing to acquiesce.
There’s a very big problem with this type of thinking, and intellectuals, as well as today’s academics fall prey and never see the alternatives until it’s too late.
Remember the tale of “The Gordian Knot?” If not (no pun intended) all you have to understand about the story is this: When push came to shove, someone decided rather than play by the imposed rules, they made their own. Current monetary policy being implemented in the fashion that it currently is I believe will end up in results much of the same.
This is where the powers-that-be feel, appear, and act as if anointed while dictating terms as to why things are, and will remain, as they state they should – till someone walks in and cleaves the notion of it all with their own solution. Literally.
It’s only been a week with full-on central bank behind the scenes action to quell (and erase) the Brexit initial impact.
The effect of the Yuan is still yet to be felt, let alone, evaluated. While another more poignant question remains: Have we seen the last? Or: is this just the beginning of their devaluing?
Make no mistake, China’s next move will be far from any Illusion. And the severity of that reality just might be far more reality than the current illusion of “fundamentals” can handle. And you don’t need to look at any chart to understand that fundamental reality.
© 2016 Mark St.Cyr