This past week saw some very unusual market activity…unusual in that stocks sold off modestly. Ever since QE3 was announced on Sept 13, 2012, the world's equity markets have traded with ruler precision, as if an upwards 45-degree line were pre-drawn on the charts and stocks simply followed that.
There's no doubt that much of the exuberance of financial assets has been due to all this money printing, coupled with the somewhat naïve belief that should things ever 'go wrong' again, that the Fed and other central banks will, of course, prevent investors from suffering the indignity of taking any losses.
That is, the global stock markets have been trading as if risk has been entirely removed the equation. Fundamentals have had zero impact on the prices of equities as they have gone up on good news (hey, the economy is improving!) as well as bad (hey, there's more stimulus on the way!).
We saw this same level of rationalization in play in 2006 and 2007. It was as frustrating to those with an eye towards rational thinking then as it is today.
Only today is worse. A lot worse.
Rarely does a day go by when I'm not being asked to find investments that can offer the sort of a decent, safe return as we used to have on Treasury bonds. Such things simply do not exist in the financial markets anymore. Instead, the Fed, et al. have made a specific effort to force people into risky assets with puny yields.
They did this with callous disregard for savers, pensions and retirees living on fixed incomes. Why? Because it was the only way they knew how to re-capitalize the big banks so they could 'get healthy' without simply, you know, actually handing the big banks sacks full of retiree's cash in broad daylight.
Our position is and has always been that this is a policy destined for failure. The longer it persists, the larger and more catastrophic the failure will be.
After last week's market weakness, some are now asking: Has the unwinding begun?
Certainly there's a new whiff of outcry in the air, despite how minor the recent stock market pullback has been. This is unusual, too, because just three years ago such a minor decline would not have raised a single eyebrow; it's tiny compared to the larger market advance of the past few years.
by cmartenson