Central Banks Are About To Leave Fiat Addicted Stock Markets In Agony
By Tyler Durden
Submitted by Brandon Smith via Alt-Market.com,
Many investors today are not very familiar with market history and tend to live only in the day-to-day mainstream narrative while watching little red and green graphs move up and down. This is not so much an issue in a relatively stable economic environment. The problem is, today we live in the most unstable economic conditions possible.
These investors and analysts are simply not aware that some of the most exciting stock rallies occur during the most volatile crises, and so they interpret every rally of a few days to a few weeks as a signal for recovery. However, in this kind of fiscal environment, all the gains made in a few weeks can be lost in moments.
After the Great Depression began to take hold in U.S. markets, massive rallies unfolded over the span of weeks and sometimes months, only to end in a collapse to even lower depths. For example, in 1930 the Dow Jones enjoyed historic rallies twice, gaining 48% only to lose it all, then gaining more than 16% and crashing down to a 50% loss for the year. Each consecutive year there were multiple rallies of more than 25% and each time they disintegrated. By 1932 stocks were only worth approximately 20% of what they were worth in 1929. Bear market rallies continued to give false hope to investors and the public throughout the crisis, and mainstream banks and economists continued to exploit such rallies to capitalize on those false hopes.
I mention this to put our markets today in perspective. Mainstream analysts and some banking moguls are already declaring a reversion of the instability that was launched at the beginning of this year due to the spike in stocks over the past three weeks. I explained the reason behind this comparatively short term rally in my article “Markets Ignore Fundamentals And Chase Headlines Because They Are Dying.” In desperation, the investment world has placed all its hopes on renewed stimulus measures this March by China and the European Central Bank. They have also made bets that the Fed will not raise rates again until the end of this year, if they raise rates again at all.
I believe the next two weeks will be very telling in terms of how the rest of the year in markets will progress. If mainstream analysts and investors are placing faith in further central bank intervention, they may be greatly disappointed.
Every action of the central bankers this year has indicated a shift away from open intervention. The taper of quantitative easing (QE) has run its course and no new QE has been announced since. The rate hikes were launched in December despite all traditional logic to the contrary and now, Fed officials appear to be staying on track for more hikes in the near term. Kansas City Fed President Esther George told Bloomberg that a fed rate hike in March should “absolutely remain on …read more
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