Do not mistake outcomes for control – remember, there is no such thing as control – there are only probabilities. – Christopher Cole, Artemis Capital
Central Banks globally have created a massive fiat currency fueled asset bubble. Stock markets are the largest of these bubbles – a bubble made worse by the Fed’s attempt to harness the ‘power’ of HFT-driven algo trading. At least for now, the Fed can ‘control’ the stock market by pushing the buttons that unleash hedge fund black box momentum-chasing and retail ETF buy orders whenever the market is about to head south quickly.
However, the ability to push the stock market higher without a statistically meaningful correction is a statistical ‘tail-event’ in and of itself. The probability that the Fed can continue to control the market like this becomes infinitesimally small. The market becomes like a like a coiled spring. The laws of probability tell us this ‘spring’ is pointing down.
This post was published at Investment Research Dynamics on October 22, 2017.