To all those investors expecting the Fed to step in to backstop the recent weakness seen in the stock market, Wolf Richter warns: The cavalry isn’t coming.
After years of force-feeding too much liquidity into world markets, the central banking cartel is now aware of the Franken-markets it has created. And now with a new head at the US Federal Reserve, and soon at the ECB, central bankers have shifted their priority from supporting asset prices to now actively engineering lower prices.
They just don’t want prices to drop too far too fast.
Of course, the big question is: how much control do they really have? The situation may very quickly get out of their hands.
But the big takeaway is to expect lower prices across the board for nearly every “risk on” asset: stocks (including and especially the FANGS), corporate bonds and real estate. The Fed is working to reduce investor exuberance — and as many bloodied contrarian investors will warn you — Don’t fight the Fed:
Now we’re in an environment where we have an Everything Bubble, and even though there’s still a few central bankers out there that say that they can’t see the bubble, others have now acknowledged it. Of course they don’t call it a “bubble”; they say that prices are “elevated”. So they’re seeing this. In my opinion, a lot of the responses from the Fed are not really about inflation; they’re really about trying to avoid the asset bubble from getting any bigger. They’re trying to avoid a deflation of that asset bubble that could be very messy for the financial system.
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