Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Central Banks and Government Policies Control the Markets Myth

InvestorEducation / Learning to Invest Dec 12, 2014 - 04:44 AM GMT

By: EWI

InvestorEducation

Don't Get Ruined by These 10 Popular Investment Myths (Part X)
Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. -- NONE have a reliable effect on the stock market

You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?

And more importantly, will they warn us of a new approaching doomsday, should there be one?


This series gives you a well-researched answer. Here is the conclusion of this 10-part series.


Myth #10: "Central banks and government policies control the markets."
By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)

Virtually everyone believes this statement; certainly most economists do. Keynesians and monetarists believe that authorities can control the money supply and interest rates, and most neo-Austrians believe that the Fed is all-powerful when it comes to inflating: Whatever inflation rate it wants, it simply manufactures.

Not long ago [in late 2008 -- Ed.] the U.S. government announced that it will fully back the debt of the mortgage companies it created (Fannie Mae, Freddie Mac); it pledged to use taxpayers' money and borrow unlimited amounts to fund banks that it deems "too big to fail," while pledging that the FDIC will fund shortfalls at all other banks. At the same time, the world's top central banks offered unlimited credit at near-zero interest rates, in other words, free money.

According to the exogenous-cause model, these historic pledges and bailouts should have had immediate results. Take a look at Figure 20. Can you tell where on this graph of stock prices authorities took these actions?

According to the economists' beliefs, the only rational place for them to have taken place would be at the bottom of the market. The minute the authorities began flooding the market with liquidity is the minute it should have turned up.

Figure 21 shows that in fact these actions took place in the early portion of the biggest stock market decline in 76 years. These actions did not push stock prices back up. The market finally bottomed months later, at a time when nothing along these lines happened.

It is no good to claim that these actions had results eventually. By that reasoning, any future turn in the stock market would prove the contention. Such reasoning is tautological, because the market fluctuates.

An exogenous-cause believer would do far better to explain this result by claiming that authorities' actions of this type must be bearish, because every time they acted, the market fell; and when they finally stopped, it rose.

Economists do not advance this argument, because they can't make sense of it. Instead, they cling to their traditional cause-and-effect logic, while the markets just do what they want.

Over the preceding pages, we have seen that interest rates, oil price changes, the balance of trade, changes in earnings, changes in GDP, the onset or termination of war, peaceful times, terrorist attacks, inflation, a central bank's monetary policy and a government's fiscal policy have no reliable effect on financial market prices. Sixty-four years ago, a financial modeler named Ralph Nelson Elliott, after observing markets for some time, concluded,

"Current news and political developments are of only incidental importance, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed."

According to our investigation, Elliott was too generous; they appear to carry no weight at all.

I am unaware of any exogenous-cause claim that holds up under scrutiny. An event that seems to affect stock prices one way in the present, when investigated in the past, fails to provide any consistently reliable relationship. Even claims that seem inescapably reasonable, if not irrefutable, fail the test of even moderately rigorous empirical observation.

I have tested every exogenous-cause statement or assumption I have heard, not all of which are included here. So far, none of them work. Many exogenous-cause statements contradict others, as we saw throughout this discussion. Proponents often adopt one argument and then the other, to fit market events.

We still await exogenous-cause proponents to make any statement of stock-market causality -- or social-mood causality -- that holds up consistently throughout the historical record. ...


Market Myths Exposed

Download Your Free eBook: Market Myths Exposed

This 33-page ebook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand.

Download your free eBook now >>

This article was syndicated by Elliott Wave International and was originally published under the headline Don't Get Ruined by These 10 Popular Investment Myths (Part X). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules