Free Markets
What a joke the efficient markets hypothesis has become. Following the crisis in 2008, Central Banks worldwide have intentionally interfered in the global financial markets on the order of Trillions for the last decade.
Staring at the above picture is mind boggling. Global Central Banks now hold ~ $20 Trillion in financial assets.
To put this in perspective the entire “Crypto” market capitalization is roughly $300B or 1.5% of the amount held by Central Banks.
It is no wonder that markets worldwide have been propped up by buyers chasing yield of all kinds and markets like Crypto have emerged as an obvious sort of bubble creation.
When Central Banks buy securities (usually government bonds) they force others to buy more risky things. This has a distortionary effect across all markets and so it is impossible to imagine what markets would be like it if weren’t for this intervention.
The primary effect of this buying has been to suppress the yields of government bonds which remain at extremely low levels worldwide. Government bonds represent claims on government risk and so they are subject primarily to the risk that a government won’t re-pay — in other words, Political Risk.
Meanwhile, we read headlines of the US President firing the Deputy Head of the FBI, an election in Italy yielding no government, an open Cyber war with Russia, and so on. Political Risk is spiking globally while the charade of propped up financial markets is maintained by these extreme government interventions.
While it is true that efficient markets are a falsehood in the short run, over time markets do have a tendency to correct even for extreme things like the dot com bubble, and the housing bubble. The same will be true for this Government Intervention bubble.
In a way, perhaps the Populist Rising we are witnessing is the System attempting to break free of the yoke of government intervention. Perhaps Political Risk itself is the market’s way of normalizing the insanity.
Time will tell. For now the key is to have your eyes wide open and have no delusions about how manipulated markets are today and to know: this will not last.
