"Patient" Fed and SNB's Negative Rates Sparks Monster Stock Market Rally as Oil Prices Crumble

So who says stock markets have been about G-R-O-W-T-H?

From CNBC: (all bold emphasis on articles quoted are mine)

A surging U.S. stock market rallied to its best two-day gains in three years Thursday.

The monster rally, which kicked off Wednesday after Federal Reserve Chairwoman Janet Yellen assured the markets that the central bank would be patient about lifting interest rate, burst into an all-out bull run late in Thursday trading.

The move caps a two-day charge higher, bringing the Dow back to within shouting distance of 18,0000, after rocky trading days.

The Dow Jones Industrial Average DJIA, +2.43%  soared 421 points, or 2.4%, to 17,778.15, its biggest one-day gain in three years, a day after the Federal Reserve said it “can be patient” about the timing of its first rate hike, signalling increases will be slow and steady.

From Bloomberg:

After their biggest six-day tumble in three years, European shares have regained more than half of their losses, jumping the most since November 2011 today.

The Stoxx Europe 600 Index rallied 3 percent to 339.05 at the close of trading in London, with banks contributing the most to the advance. The Swiss Market Index (SMI) posted its biggest jump since January 2013 after the nation’s central bank introduced its first negative deposit rate since the 1970s. The announcement came after Chair Janet Yellen said the Federal Reserve will probably hold rates near zero at least through the first quarter and that they may not return to more normal levels until 2017.

From Reuters:

Global equities markets rallied on Thursday, with Wall Street surging nearly 2.5 percent, as investors buoyed by policy comments from the U.S. Federal Reserve moved into riskier holdings.

The Swiss franc tumbled after the country's central bank announced a surprise charge on deposits, wary of a flood of money exiting Russia and likely inflows from the euro zone if the European Central Bank starts full-scale money printing early next year.

Wall Street powered higher, with the S&P 500 putting up its best two days of gains since November 2011, according to Reuters data. Health and technology shares were among the strongest U.S. sectors..SPLRCT .SPXHC

All these rallies comes in the face of crumbling oil prices  WTIC –1.65% and Brent -3.21%

This reminds me of 2006-7.  Then, US housing markets markets diverged from US stocks. US housing markets deteriorated as stocks soared.  Subprime housing loans which used to signify just a minor share of overall loans eventually contaminated the entire spectrum. Then the crisis surfaced. Today will the energy sector serve as the US housing subprime equivalent?

Anyway the above just reveals how, like Pavlovian dogs, central banks triggers manic delirium episodes on financial markets.

As I previously discussed, stocks are about liquidity and credit and the (false) confidence it spawns. Take away credit and liquidity, confidence dissipates which means that the whole structure collapses.

And that’s why from ECB to BoJ-GPIF to PBoC and now to the SNB and the FED, tenuous confidence has to be maintained by sustained assurances of liberal access to credit and guarantees of abundance of central bank provided liquidity via financial repression policies in the form of different tools—interest rate cuts, QEs, outright support on stock markets  (Japan’s GPIF), negative deposit rates or even merely assurances to implement them.

Rigged financial markets means castles built on sands. Eventually the ocean tide will wash them away.