Global Stock Markets: The Euro Bazooka Deal and the Boom Bust Cycle

I used to think that the stock market has generally NOT been a form of gambling. But events have been tilting the odds to favor “high risk high volatility” or excessive speculative activities.

Here is what I wrote in my stock market primer, (bold original)

government interventions can tilt or distort any markets away far from its price signaling efficiency. This is where the level of the playing field or the distribution share of the odds are skewed to favor one party over the others, mostly the recipients or beneficiaries from these interventions. Where the governments assume the role as the HOUSE and the beneficiaries as the DEALERS, then all other participants operate as PLAYERS, hence your basic description of a gambling casino.

There seems no other solid proof or validation of this hypothesis than what has transpired today.

tables above from Bloomberg

Last night, major equity markets skyrocketed following the long awaited culmination for a Bazooka approach to the Euro debt crisis which obviously has 'gratified' the global financial markets deeply addicted to bailouts.

Bespoke calls this a ‘crazy market’

They write,

You know this market has gotten crazy when 100% of Financial sector stocks are trading above their 50-days!

But as I have pointed out since, this has really been more of a boom bust cycle than just an irrational market.

Another of Bespoke’s chart exhibits the dramatic turnaround of the market breadth of the S&P 500. The S&P 500 is clearly being driven by tidal flows.

Importantly, the S&P’s 500 chart has popped above the 200-day moving averages which should put pressure on the bearish ‘death cross’ if the bullish momentum holds.

In downplaying the predictive value of chart patterns, I recently wrote,

The prospective actions of US Federal Reserve’s Ben Bernanke and European Central Bank’s Jean-Claude Trichet represents as the major forces that determines the success or failure of the death cross (and not statistics nor the pattern in itself). If they force enough inflation, then markets will reverse regardless of what today’s chart patterns indicate. Otherwise, the death cross could confirm the pattern. Yet given the ideological leanings and path dependency of regulators or policymakers, the desire to seek the preservation of the status quo and the protection of the banking class, I think the former is likely the outcome than the latter.

The Euro ‘shock-and-awe’ deal plus a money supply charged economic momentum in the US, suddenly seems to have switched the risk reward tradeoff conditions to a ‘risk ON’.

Boom bust cycle indeed.