The One Chart Which Explains “Why Markets Are All Falling Down”

Yesterday we felt like a brief moment of gloating was deserved, when we noted that, based on the WSJ’s reporting, the somber mood among Davos “prominent investors” and billionaires was “irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long…. from this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate.”

In other words, precisely what we have said all along. But there is much more work to do before the victory lap, most importantly in explaining what happens next.

Well, since it is now common knowledge that it is all about central bank and rigged markets, the next logical step is to predict what happens to markets when looking at “asset prices” from a purely central bank liquidity standpoint, aka the Austrian money flow perspective.

Here, we remind readers that in early 2013, just as the BOJ was preparing to unleash an epic QE episode in order to offset the lost liquidity injections which the Fed’s upcoming taper would lead to, we explained that instead of looking at central banks as standalone entities operating within their own liquidity domains, one has to look at global liquidity as a coordinated whole, one in which every central bank is now an integral cog and where inside money liquidity is not only globally fungible, but transferable from point A to point B at the push of a buy or sell button.

And while for the longest time many, including us, were focused on DM central banks, over the past year a new market participant emerged: Emerging Markets, whose $7 trillion in reserve assets had become a source of reverse liquidity, or “quantitative tightening” as dubbed here over the summer, as numerous nations have been forced to liquidate USD-denominated assets to compensate for the loss of trade exports and oil revenue in the aftermath of the death of the Petrodollar which initially was noticed on this site alone and subsequently everywhere else.