Rapid moves on markets are usual around the moments of reversing the trend. Yesterday we saw the most rapid movement down on almost all stock exchanges. Some of the losses of some companies were later partially or entirely compensated. Anyway movements of 2-3% in one day are a symptom of a serious change.
Many analysts are expecting a “big correction” on Wall Street. Some of them are going even further in definition by talking about a “bubble” and expected “burst”. Stay away from Wall Street is may be the wisest advice today. And there is much logic in this. The Stock exchange looks as it has cut the connection with real economy. Wall Street is going up and up, while the economy globally is continuing to stagnate. So how can assets go up, while the business that brings profits is staying at one place?
May be the main reason for this paradox is the incredible money print conducted by major central banks. Enormous quantities of uncovered money are being poured to the market. Much people expected inflation and in fact it will happen at any moment. But there is some kind of absorbing effect or may be more precisely said – redirecting effect, created by capital markets. Instead of pumping the consumer prices up, money is going on capital markets and creating new bubbles there. So QEs and LTROs obviously are behind the stock exchange bonanza from last years. It is not real economy. It is just a speculative bubble.
Now there are rumors of slowing QEs. In fact stopping them is impossible as the US government will go to default. But even the rumors are enough to trigger the end of the bubble.
If Wall Street accelerates in bear direction it is absolutely sure FED will cancel the cancellation of QEs. USA cannot allow a new deep correction in asset prices in so unstable overall situation. And FED will do the only it can do – print money.
The classic capitalism does no longer exist. The word “default” is forbidden. No one can bankrupt, because will crush the system. So instead of going through the healing procedure of bankruptcy we are jumping from one bailout to another, and all this paid with newly printed money.
So far, rapid moves mark beginning of changes. And first - a change in the justification why we have to print the next portion of valueless money.
April 11th 2014