Following last night’s 3.8% quasi crash, the German major equity bellwether the DAX has succumbed once again to the bear markets.
Last night's action brought the DAX down 22.7% down from its April 2015 peak. This marks the second attempt by the DAX to cross the bear market threshold. The first was in August 24 2015. But this time the DAX BROKE the August 24th low!
The Volkswagen scandal partly contributed to this (table from Yahoo Finance). The car company supposedly 'cheated on emissions test' by programming some 500,000 vehicles to show they had lower than legally allowable emissions. The VOW was crashed by a shocking 19.82% last night.
But remember, the DAX has already been in a decline and touched the bear market even prior to the VOW scandal.
It just took a big headline event to escalate on the momentum.
What’s even more interesting has been that the DAX now drifts at levels where the ECB announced its QE version last January 2015. This was implemented last March.
These means that all the accumulated monetary subsidies, mostly through the ECB’s balance sheet expansion seem to have been engulfed by the law of diminishing returns such that the magical effects on asset prices from these policies have become impotent!!!
Yes, said differently, the central banks can be analogized as 'the emperor has no clothes'!
Again this serves as a wonderful example of the boom bust cycle in motion.
Expect bear markets to become a dominant feature for global stock markets. And global bear markets will be the harbinger of a global recession-crisis.
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