But it does seem like this Fed-based market environment has brought on a major contraction in the ability of markets to discount the future. Markets are seeing forward only a few weeks into the future, instead of months, or even years ahead, as they have in the past.
My theory is essentially every financial market is currently not experiencing proper price discovery, due to massive manipulation by central banks. This is especially true for bond markets and currencies, and by extension, gold. After all, what is quantitative easing other than the Fed intervening in the bond market to buy bonds? And they are an unnatural buyer. They don’t buy to capture profits or hedge existing positions, as market participants are supposed to, and they aren’t using currency backed by labor and savings – they are, quite literally, using “monopoly money” of their own creation.
Their interventions in bond markets are influencing the price discovery mechanism that functions so well in freely-traded markets, and is therefore contracting the market's ability to properly discount the future.
Because of this we should expect more volatility in the months ahead, as this “short-term syndrome” becomes even more heightened with further Fed interventions into the markets.
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