~ The Offspring, Something to Believe In ~
The recent rally has been breathtaking, however the majority of investors have missed out on a large portion of these gains as significant levels of cash have been either moved to bond funds or taken out of equity markets consistently during this rally. Let’s face it, financial markets around the world are not what they once were.
US equity markets in particular are manipulated by high frequency trading which is wreaking havoc in the marketplace in terms of potential short term volatility expansions and “flash crashes” that can be isolated to one underlying stock.
In addition to the high frequency trading robots, the Federal Reserve is equally involved in the direct manipulation of financial markets through record easing adjustments. The Federal Reserve has unleashed massive amounts of liquidity while keeping interest rates incredibly low which has produced an environment where the risk-on attitude permeates the landscape.
As a basic example of the failure of recent Federal Reserve policies and their impact generally on the valuation of various underlying assets, I submit for consideration to readers a 20-year price chart of the US Dollar Index.
20 Year U.S. Dollar Index Chart
It boggles the mind to consider that Chairman Bernanke routinely denies that the Federal Reserve has failed to maintain what he calls “price stability.” When looking at the chart of the valuation of the US Dollar against a basket of foreign currencies, most fifth graders if given the context would proclaim that the Federal Reserve has failed in their objective to maintain price stability.