2,816 times over the last 6 month, commenters have come onto the site to wax philosophical about the liquidity-fueled mania in the US stock market. I’ve long contended it’s a crock, and the price action over the last two weeks are proof.
Odds of QE have fallen, US interest rates have risen dramatically, nearly 50 bp in the 10-year Treasury note, top to bottom and equities are at their highest in months.
Volumes are also at their lowest in years. When was the last time we built a bubble on low volume? Never.
What is the public doing with equities? Selling. As they have for years.
I’m not sure what the stock market is at the moment. But it is clear what it is not: a liquidity-driven bubble.
Medium-term, this argues for a weaker dollar as the correlation with US equities and the Euro pretty highly correlated. In times of stress, it becomes very highly correlate.
It would appear that a stock market collapse on the back of the Fed standing pat in September looks quite unlikely indeed.
