A Brief History of Quantitative Easing and the Current Regime's Lack of Pullbacks

You can see the effects the Fed's Quantitative Easing have had on the market. What is interesting is even though throughout Q.E. 1 breadth and volume suffered, there were still healthy market corrections around the 50-day moving average. Q.E. 2 breadth has also been horrible, but the healthy consolidation/corrections that are part of any bull market to squeeze out the excesses has been met with a totally different dynamic-the "Buy the Dip Crowd" has rushed in to buy any slight correction, never allowing for a full, healthy correction to squeeze out the excesses. QE 3 is not assured and this is starting to take on a HUGE asset bubble look in my opinion. There's no fear of downside risk, the prevailing sentiment is that the Fed will keep Q.E. coming in the form of Q.E. 3. This is no different then any of the past bubbles in which respected individuals have made the case regarding "Why the market MUST continue to move higher"-we see it every bubble. When I did my 5 part series on bubbles in 2007, the market was yet to seriously breakdown, but the signs were there. Still well respected talking heads on CNBC made very compelling cases as to why we should expect Dow $20,000. Shortly after that the market fell 50+%.

When a trade becomes too obvious and a bubble forms, you have to take these talking head experts with a grain of salt. Every bubble that I've chronicled back to the Dutch tulip Craze had the same thing in common, THIS TIME IT'S DIFFERENT" and with the market structure having broken down with few middle men able to compete with the High Frequency Trading firms and very little in the way of market participants, eventually this may create one of the most severe asset class bubble reactions we have ever seen. there's simply no market structure left to provide liquidity should a sell-off ensue and sooner or later it will happen-the Fed has made that a reality.

I know right now it's difficult to see and to believe, there are too many experts telling you why "This time it's different" and they are right, but for all the wrong reasons as the market structure has completely collapsed. The chart above is just one small proof of this fact.

That doesn't mean you can't continue to follow bullish trends, it just means you must be aware of the situation. While it is different, it's for all the wrong reasons. The SEC won't step in, the exchanges have no motivation to change status quo and once again we are in the midst of creating another bubble. How many times must one be burned before they learn.

The worst part for those who are unprepared for the eventual reality is that FEAR is a stronger emotion then GREED and for every day of greed we have seen in the market, the reality and effect of fear in a market in free-fall with no backstops, no liquidity providers may very well present one of the greatest opportunities you are yet to see in your investing lifetime.