Fed Driven Bubble Destined To End Badly

The stock market and not the economy. People that point to the market as proof that all is well put stocks in front of the real indicator of our economic strength which is the middle and lower class. The disconnect between the working people and the financial community is apparent in the difficulty people with small businesses have getting loans or financing a project while big business is fed billions of dollars by the banks and Wall Street. If anyone is losing confidence in the system it is these people. This is not a problem Biden or any politician can solve with government social programs.

At some point to reestablish true price discovery it will be necessary to break the well-ingrained habit of "buy the dip." This method of trading has worked since October 19th, 1987 when the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session. That is the day the actions by Fed Chairman Greenspan galvanized the mantras "buy the dip" and "don't fight the Fed." Greenspan did this by affirming the Federal reserve would be there "to serve as a source of liquidity to support the economic and financial system." 

The trading patterns flowing from investors buying the dip are now ingrained in the algorithms embedded deep inside the computers that drive much of the stock market's action. As noted earlier, to the chagrin of those with a negative view of the Fed, Powell has confirmed the Fed plans to continue as the great enabler. The rapid expansion of debt and credit during the last decade could not have occurred without the Fed being complicit. When things move too far in one direction adjustments do occur. Do not be surprised if the dollar again jumps higher as the reality sets in that many countries will do far worse than America in the coming months. For now, we watch and wait while the market again tries to discover its true value both here in America and across the world. 

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Adam Reynolds 1 month ago Member's comment

It's just magically not going to have an impact.