Just like last year and the year before and the year before and the year before, the markets are faced with a major crisis of the Economic System. And just like in the past four years, markets sold off to a varying degree. As the crisis grew, the market response became more muted and responded negatively from higher levels.
This time, during what appears to be the potential for a complete default of the European Banking and Sovereign funding regime, the SPX dropped by 150 points or about 10% from its yearly highs over a period of about 8 weeks. It was the smallest and shortest pullback of the entire Credit Crisis. This time, like the last times, the Central Bank Policy Response rumors and proposals were enough to snap the markets back to near their previous highs. Markets have made back 60% of the entire loss in less than 2 weeks. It is the shortest and fastest snapback of the entire Credit Crisis.
As I have postulated over the past year, and is now seemingly common knowledge, is that Central Banks have been spending copious amounts of Capital to train market participants that the stock market is the only real evaluative measure of economic confidence and keeping it “inflated” is Job #1. Considering that we are one good QE rally away from testing all time market highs, I would say that the Central Bankers and their Policy Response have been successful.
There are no more ”Black Swans” as they have been made extinct by the expectation of unlimited digi-money creation and locked in the closed loop of the financial/investor system. There can be no inflation nor deflation. Earnings matter not. The System and the Game must survive at all costs, even if it means destroying the savings of the world. But in this world, people don’t matter, only institutions and their Balance Sheets. Political leaders are expendable and are in fact easily replaceable.
The Central Bank Corpratocracy is the 21st Century version of the 1960′s Military Industrial Complex.
With this information and realization by ”investors”, there will no longer be major selloffs because everyone knows it will be greeted with Policy Response. What this means is that markets will remain ”elevated” but may now begin a period of going nowhere that could last for years.