When you visualize Wizard of Oz-like global central banksters now trying to keep $200 trillion of global capital assets levitated, merely by using incremental bond buying programs, you realize just how ludicrous the globalized ponzi scheme has become. Worst of all, they have given corrupt governments a free pass to do nothing to fix the real economy...
"Aw fuck - not this again !!!"
There is an interplay of very specific and tenuous factors that so far have kept this shit show levitated, which Central Bankers may not be aware of at this time, but they will be:
1) Low Volatility
Many observers have noted how stable the markets have become these past few years since the monetization programs went into effect. It's as if the markets have a built-in shock absorber. That's not just due to the amount of new Central Bank capital coming into the market each day - it's also due to the feedback loop between Actual and Implied volatility.
Actual volatility - is the range of stock price fluctuations from day to day. Actual volatility of course has been substantially dampened by the Central Bank programs that inject billions into the markets at a metronomic rate.
Implied volatility - is the amount of volatility implied by options prices. However, unless there is a very major event occurring that is causing panic, then implied volatility is usually based upon recent Actual volatility. In other words there is a feedback loop between Central Bank buying programs dampening Actual volatility which then dampens implied volatility.
Here is where it gets interesting - when implied options volatility falls, options become cheap which sends a price "signal" to the HFT bots to deploy capital on the long (buy) side of the market. They come in and deploy their huge depositories of capital and use cheap options to hedge. So, in other words - Central Banks are sucking in private capital into the market via this interrelationship between Actual and Implied volatility.
2) Low Volume
Low volume's role in all of this is to allow relatively small incremental amounts of capital to drive outsized price increases. Low volume has amplified the impact of Central Bank programs and of course HFT buy programs.
When (If Ever) Does Liquidity Lose Its Ability to Move the Markets?
It's already ending now - via sector rotation. One by one, each sector gets played out such that valuations get stretched and prices get levitated - vertically - to a point where sellers exceed buyers. Then these assets/sectors fall back and the HFT bots move on to the next one. Recall, gold's rise and fall in 2011 and its now subsequent inability to get off the mat. Commodities and commodity stocks are going through the same sort of price collapse right now. Once every sector gets played out - it looks like Utilities are now burned out even as I write - then the ability for incremental amounts of capital to move the entire market will end. In the longer-term, valuations matter, so pushing the valuations too high, causes asset reallocation programs to kick in, which are orders of magnitude larger in size than Central Bank programs. Once these asset reallocation programs kick in, then the selling overwhelms the buying. Ironically, Central Banks buy bonds to push their yields down and force investors into riskier asset classes, however, by driving stock prices up, they have lowered the (earnings) yield on stocks, making them less attractive. Absent a corresponding rise in earnings, it was always going to be a self-defeating strategy.
Whether there is an exogenous event or not, heavy selling will cause Implied and Actual volatility to rise, at which point the above process will go in reverse i.e. when hedging becomes too expensive, HFT bots will remove liquidity from the markets, just as they did during the Flash Crash of 2010...then the League of Extraordinary Banksters - and their legions of believers - will find out that you can't levitate stocks indefinitely in the face of a stagnant economy.
