The bear market rally could be nearing the end of the road as the central banks’ quantitative easing (QE) tapering begins
While the mainstream is occupied with headlines about the coronavirus reproducing by one million per week with surges in infected people, particularly in the US and South America, that news has eclipsed another less eye-catching story, namely that the central banks have engaged in a policy shift as QE tapering begins.
“The market has got its fix with over $18 trillion in the global stimulus which has ensured a melt-up in risk assets, while the fundamentals meltdown” wrote Darren Winters in a piece entitled, Central Banks in Cahoots, dated June 22.
So the bear market rally, the best in three decades where S&P 500 rallied 12.7 percent in April alone, was spurred by a massive central bank stimulus, QE max.
“The market has got its fix with over $18 trillion in the global stimulus which has ensured a melt-up in risk assets, while the fundamentals meltdown”
The stock trajectory could be mirroring that of the 1929 crash’s dead cat bounce
The crash phase of 1929 lasted from Oct. 10-29, which was followed by a bounce that retraced 36% of the crash-phase losses. The bounce, relapsed once more before the Dow staged a five-month 50% rally (which also gave way to further losses). Big bear market rallies in stocks
All have one thing in common, massive central bank intervention to prevent a meltdown in risk assets.
“The stock trajectory could be mirroring that of the 1929 crash’s dead cat bounce”
The central banks’ massive easing policy of zero and near-zero interest rate policy and endless QE, with its side effects of currency debasement, have their limitations
At some point, negative divergence, deteriorating fundamentals, and booming stock prices will threaten the trust in central banking and that could lead to a monetary crisis, a collapse in the central bank’s fiat system. Think about it, if a country’s main stock index is up 2% but the exchange value of the currency is down 10% against gold then there is no value in investing and saving or storing wealth in fiat currency.
But the status quo needs consumers and also savers and investors.
“The current rally in gold is spurred on by a vote of no confidence in the central banks’ QE to infinity policy which is debasing fiat currencies” – Win Investing
Perhaps we are nearing the threshold that threatens investors’ trust in fiat currency, and that is why I believe we are seeing a policy shift, QE tapering
The current rally in gold is spurred on by a vote of no confidence in the central banks’ QE to infinity policy which is debasing fiat currencies.
Recent evidence of QE tapering came from the BoE’s June Monetary Policy Committee which agreed to slow the pace of asset purchases.
The Bank of England voted to pump an additional £100bn into the UK economy, but it has also reduced the pace of asset purchases by two-thirds.
BoE attempted to talk down negative interest rates policy but has yet to rule it out
Moreover, the Fed has been following a policy of QE tapering with its dialing back pace of its treasury purchases in April. Fed Chair Powell said in June that the Fed would keep buying Treasuries and mortgage-backed securities, “at least at the current pace”. At the moment, the Fed will buy $20 billion in Treasuries this week and up to $22.5 billion in mortgage bonds to stimulate the economy by quantitative easing.