The Ugly Truth
For years critics of central bank policy have been dismissed as negative nellies, but the ugly truth is staring us all in the face: Market advances remain a game of artificial liquidity and central bank jawboning and not organic growth and now the jig is up. As I’ve been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch.
And don’t think this is hyperbole on my part, I will present the evidence of course.
In March 2009 markets bottomed on the expansion of QE1 which was introduced following the initial QE1 announcement in November 2008. Every major correction since then has been met with major central bank intervention. QE2, Twist, QE3 and so on.
When market tumbled in 2015 and 2016 global central banks embarked on the largest combined intervention effort in history to the tune of over $5 trillion between 2016 and 2017 giving us a grand total of over $15 trillion in central bank balance sheet courtesy FOMC, ECB and BOJ:
When did global central bank balance sheets peak? Early 2018. When did global markets peak? January 2018.
And don’t think the Fed was not still active in the jawboning business despite QE3 ending. After all their official language remained “accommodative” and their hike schedule was the slowest in history, cautious and tinkering not to upset markets.
With tax cuts coming into the US economy in early 2018 along with record buybacks markets at first ignored the beginning of QT (quantitative tightening), but then it all changed.
And guess what changed? 2 things.
In September 2018, for the first time in 10 years, the FOMC removed one little word from its policy stance: “accommodative” and The Fed increased its QT program. When did US markets peak? September 2018.
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