Here’s the evidence.
By Sven Henrich and cross-posted from Market Watch.
For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, 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, of course, present evidence.
In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: 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. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:
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 interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets…