Wolf Richter: Making Sense Of The Recent Market Gyrations
Every week at PeakProsperity.com, we record a podcast exclusive for our premium subscribers titled Off The Cuff, where Chris and a weekly expert discuss the notable developments of the week. Every once in a while, we’ll share one of these episodes with the general public, which we’re doing this week. Here’s Chris Martenson in discussion with Wolf Richter, evaluating the causes and repercussions of last week’s violent drop across the stock and bond markets.
Recorded last week as the market was in full melt-down mode, Chris and Wolf Richter decode the underlying drivers of the sudden reversal, and peer into the future to predict what is most likely to happen next. Both agree that, whether stocks are briefly ‘rescued’ in the ensuing days, the long-awaited downward re-pricing of the ‘Everything Bubble’ is nigh.
As Wolf puts it:
The emerging market stock index is down 22% from January. So they have gotten hit pretty hard. There’s this trend from the outside toward the core. So when something deteriorates, it starts at the outside and moves toward the core, the core being the higher quality US financial instruments. So that’s probably a dynamic that has already started. And I agree with you. The central banks removing liquidity is a big thing, and it has a big impact.
And people have said, for years, well, QE didn’t cause stocks to go up. So when that goes away, it’s not going to cause stocks to go down. But that’s just not true. The purpose of QE, as Bernanke himself explained it in a Washington Post editorial in 2010, is to create the wealth effect, to bring asset prices up so that the wealthy feel wealthier and spend more money and then this someone trickles down.
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