This does not seem to be the end of the track for the Fed's gravy train just yet, though. The Monday sell-off was not based on any new data or earnings reports, just a general spookiness working its way through the markets...
So is this what the Fed's QE funny money afterparty looks like? Are we starting to see the messy morning after results of the 6 year long bailout stimulus binge where the punchbowl is traded in for the toilet bowl? Has the bailout bubble popped, in other words?
Nahhh, but things are definitely becoming interesting as we head into a time of the year that is no stranger to big market moves (think September 2008 or October 1987 for reference). The actual popping of this bond bubble era when it comes will be unmistakable and quite a bit more devastating than the recent run of bad weather on the DJIA and S&P 500, but after the worst market sell-off since 2011, investors are starting to take a harder look at their portfolio and wondering (once again) if all that “this bull market will never end” rhetoric of recent years just might have been hyperbole, after all.
For those who haven't been watching, the S&P has fallen 6.8% off its record high, reducing its year-to-date gain to 1.4%. The VIX, meanwhile, has risen to its highest levels in two years, including a remarkable 63% jump in the last three days of last week, meaning volatility is extreme. The Dow also slumped 222 points in a late slide on Monday, sending the index into slight negative territory for the year. This is not the way things are supposed to be, according to the bull-predicting talking heads of the mainstream media.
This does not seem to be the end of the track for the Fed's gravy train just yet, though. The Monday sell-off was not based on any new data or earnings reports, just a general spookiness working its way through the markets on the much-hyped Ebola concern and plunging energy shares and sinking oil prices and (presumably) at least a slight awareness that recent mania for stocks has been overblown. But this is not the end, with stocks rising once again (as of press time) as if to prove the point. There is still a great degree of trust in the markets at the moment and the same underlying forces that have been propping them up for the last several years (loose monetary policies of numerous central banks around the world, massive investment by global public investors, anemically low interest rates) will continue propping up the markets for the near future.
Interestingly (and completely predictably) equities' losses have been gold's gain. From a 4 year low of $1190 at the beginning of the month, gold prices have jumped in recent days and the yellow metal is now trading around $1233/oz. The price is likely in a $1200-$1250 range at the moment, but this is just a taste of what we can expect as global equities markets continue to unwind, driven down by a slowing global economy (which will drive oil prices down even further next year according to a new IEA report) and the end of the QE3 policies.