Once again, we find that a moment of market reality is met with an astonishing wall of liquidity, as evidenced by the past two days of gains in, well, everything. I’ve seen this particular behavior more than a few times over the past eight years, and I’m pretty confident that I know what it is and where it originates.
On Tuesday, the market reality was the sudden realization that instead of everything getting unequivocally better, there was solid evidence of rot in the debt superstructure of much of Europe, concentrated (for the moment) in southern Europe
Well, wouldn’t you know it. That realization only lasted a single day, as stock futures were mysteriously repaired that night, bonds remained well above their pre-mini-crisis levels, and commodities came roaring back.
One might be tempted to ask, “How is it possible that such a crisis can only last for a single trading day?”
The Evidence
Tuesday’s entire high-volume stock sell-off is now history.
Has the situation in Greece somehow gone away? Did Greece, Spain, and Italy suddenly find an enormous pile of earned cash hidden away that can be used to pay down their debts? No. All that happened was that the global market speculators determined that the ECB was going to print money out of thin air and transfer the damaged Greek bonds off of the balance sheets of banks and insurance companies (where they principally reside) and replace them with the very finest sort of electronically-created thin-air cash.
And what about bonds, which caught a huge bid during the rundown? Certainly they must have given up all those gains, especially now that stocks have more than clawed back their pre-emergency losses?
No, bonds are higher than they were before the crisis. How is there enough liquidity to support such a high degree of speculation in both stocks and bonds? I’m not sure, but the charts tell the tale. There is abundant liquidity out there.
by ashvinp 
