|
|
By Gregory Mannarino, TradersChoice.net
Today it seems that just about everyone is fixated on what the stock market is doing, and the question seems to be, “Is this a stock market crash or not?” Many people today are absolutely convinced that right now today the stock market is in fact crashing. Beyond any doubt, there is a strongly bearish sentiment regarding the stock market which seems to be getting worse.
Let’s put this into perspective and clarify what is occurring.
To understand the stock market, one must recognize its main driver—that is, what is it that causes the stock market to function as a whole?
It’s one thing, THE DEBT MARKET.
Today the drivers of the stock market are not company earnings, forward guidance, or even price to earnings/PE ratios. Nor is there ANY correlation between what the economy is doing and the stock market.
What we have today is a worldwide corporate takeover being fostered by puppet governments who all answer to their respective central banks. The agenda here is an expansion of a global corporate enterprise structure—and with that, a wipe out of small privately owned businesses.
Before we move on, let us define what the debt market is: The debt market is that part of the market where debt instruments are bought and sold. Debt instruments are defined as assets which pay a fixed amount to the holder. Examples of debt instruments include bonds, both government and corporate, as well as mortgages.
Since the onset of the first round of Quantitative Easing, which began in November of 2008 and involved enormous asset purchases by the Federal Reserve (the biggest money printing/money creation event in world history) and MASSIVE DEBT EXPANSION, the stock market has gone virtually straight up.
So here we can see that, by the Federal Reserve manipulating the debt market, (not allowing the market itself to determine fair value), they have successfully reinflated both a stock market bubble and real estate bubbles.
A real market REQUIRES both buyers and sellers to agree what is fair value for any asset, but when you have central banks manipulating debt on a massive scale, that mechanism becomes grossly distorted.
Because of the massive manipulation of debt by central banks, none more so than the Federal Reserve, the stock market driver becomes one thing, the debt market.
What this mechanism has done is pull any resemblance of a fairly priced market totally out of the equation, therefore making the stock market itself A DERIVATIVE. Meaning, the stock market itself derives its value directly from action in the debt market.
Understanding that today the stock market OVERALL is now a derivative, it is dependent on stability in the debt market. Today, despite the recent rout in the stock market, the debt market remains stable. What this tells me is that the recent rout in the market is not “the big one.” For “The Big One” to occur, a debt market meltdown would need to happen FIRST, and it will, it is just not happening right now.
So, now that you understand that the stock market derives its overall value from the debt market, the thing you should focus on is just that—the debt market, and not the stock market.