It was a truly nightmare week on the markets. If you trust the US Fed to be able to smoothly unwind its emergency low-interest rate policy without crashing a market bloated on low rate-driven investment, then you probably aren’t worried. If you don’t have that much faith in the Fed, you might see them as having painted themselves into a corner.
The Dow Jones dropped 1,175 points on Monday — the largest single-day point drop in history —erasing all profits made so far this year. The 4.6% decline is the biggest percentage loss the Dow has suffered since 2011, when we saw a drop of 1,089 points on 24 August.
Central banks are the powerful beating heart of this system. They’re both the market makers and the price setters when they want to be. It’s a case of free market, what free market? Make no mistake, this is big government with big influence. If markets don’t slow down or correct by the end of 2018, the 2019 crash could be far worse.
Right now, pass the cash parcel is in full swing, and central banks are only very timidly trying to reduce the size of the parcel. That’s basically why you’ve seen the US stock market rise unimpeded for the past two years. Central banks are behind the curve. There is too much cash in the system given the positive investor psychology that is unfolding.
I do acknowledge that cryptocurrencies make some people nervous. They change deeply embedded societal structures. They change the fabric of your daily life. The security of certainty. Cryptocurrencies are a move in the direction of freedom. If we are willing to pay the price.
While CBA looks inviting with a grossed up yield of 8%, I’d happily watch how this plays out on the sidelines for now. In my view, the energy sector is now in the early stages of a new bull market. This may not be apparent immediately. After all, most bull markets start out with scepticism.
In today’s Money Morning…an incredible failure by one of Australia’s largest banks…regulators also to blame…government reaching for more power, as always…it’s dangerous to go alone, take a guide…and more…
It’s hard times for the CBA. And they will pay, in terms of both money and reputation. But now we all pay too. And not in the way you might think.
Investing is inherently uncertain. You don’t know what’s going to happen tomorrow, next week, or next year. The greater the perception of certainty is, the less fear there is, and the higher stock prices are.
Why are so many people resistant to change despite the evidence that something is very wrong? Is this a kind of collective Stockholm syndrome?