[The once and future king]

DcifrTHs.

This week the White House downgraded its growth forecast from 3.1% to 2.7% and data showed the housing slump to be the worst since WW2. The BoE went on the record and stated that the chance of a recession in the US was 50/50.

The US equity markets recorded there biggest upward trend since March. Why? Because to the markets bad = good.
Because bad = interest rate cuts. Thus we can see quite clearly that price action in the markets is motivated not by perceptions of fundamentals in the economy, but by perceptions about intervention/and of into/the the medium of exchange in which the traded vehicles are priced. This intervention of course being increase in supply.

Of course this isn't just a phenomenon of the last week, it has been observable for the last 6 months at least.

No one with even the slightest of intellectual honesty can deny that the primary engine of price movement in the DJI has been perception about the possibility that the Fed will cut/not cut interest rates for some time now.

To be clear I am responding to a post on the first page of this thread that claimed that recent price movements in equity markets were primarily motivated by fundamentals e.g. production and consumption and not considerations of "fiat" money. I am refuting that.

In a nutshell I am certain the following is irrefutable:

When the fed claims that there is a danger to growth going forward thus it will cut interest rates, the markets respond to such a statement by showing large gains. Thus we can see that the markets are not concerned with the danger to the fundamentals but are stimulated greatly by the prospect of increase in the money supply regardless of what is motivating that increase.

What cements the truth of this arguement is that the inverse is true also. If at the start of this week, the Fed had announced Credit crunch meh, fundamentals are really really good and we expect very good growth going forward that may pose an inflation risk so we may have to either hold interest rates or raise them, the markets would have bombed in a big way. (Assuming that there was data to back these claims).