Do not trust a “market” addicted to government interventions

Who knew? “Markets” love government interventions.
Maybe I am alone here but I find the “markets” overreaction to the EU rescue deal odd,out of place and totally irrational. In all honesty even a mild positive reaction should have worried us. But to have the one of the best days in equity markets since 2007 one day after scant details of a plan that only deals with Greek debt is just total madness. In fact the insanity of it all is that “markets” are this happy to have governments intervene. This is what should worry us.

Yes, I said it and all of you knew it also, that “markets” would react positively to a deal to bail out banks and Greece. My call was just an extrapolation of “market’s” reaction to TARP, QE1 and QE2. but since 2008 “the market” reacted positively only when some rescue plans was implemented by a government somewhere.

I cannot trust a “market” that gets so excited every time governments intervene. In fact it seems to me that it craves those interventions. What is there “free” about a “market” that loves governments interventions so much? Nothing. How can you trust that there will not be any more “market failure”, over investment, bad investment, if the only good thing these days is massive government interventions to correct for such “mistakes”?
Something is very wrong with the current “markets”. And that is why for me the reaction yesterday is the reaction of a mad man about to blow us all up to pieces.

Here are few links worth reading, watching after a day like yesterday


The Big Picture

Zero Hedge revisiting Hugh Hendry

PragCap on Government Put

The Economist on the rescue plan

And maybe the bond markets are what’s left of real market spirit.  The chart below shows the time line of EU interventions in the market and the determination of the bond market to call their bluff. Source: The Economist.

Finally, the video below is the only way I can explain the “market” reaction to government interventions: total madness.

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