When Central Banks Hose Stock Markets

Voilà, it is done: On Nov. 28, the S&P 500* clocked a sixth consecutive increase. This time, the weekly profit capped at 0.03 percent despite the 0.25 percent lost last Friday. Now, nobody will ever doubt the diabolical precision of algorithms. The S&P 500 also established a new absolute record at 2075.76 points a few seconds after the opening, a 255 point (+14 percent) increase since Oct. 16.

For the first time ever, the S&P 500 index has not recorded any contraction greater than 0.75 percent in six weeks; for the first time ever, not a single contraction over 0.25 percent during the last five weeks. And for the first time the total contraction did not go over 0.75 percent in the entire calendar month.

Each one of those single occurrences would suffice to make this November a historic month, but the barely conceivable combination of the three exceptions justifies the name rainbow swan* — which almost entirely overshadows the memory of the golden swan between Oct. 26 and 30.

Add in the 50th historic annual record materializing last Friday, and you have a sort of fairy tale for permabulls*, even though it is rather a computerized reworked version of “Alice in Wonderland.”

The top becomes bottom, what is tiny, a credit rated BB-, becomes gigantic, more than a AAA*; hares run quicker than high-frequency computers; cats go up in smoke like the value of time; the Red Queen spends her time yelling, “Off with their heads!” … Perfectly normal: In a Lewis Carroll-like stock market, it goes up infinitely.

And the spectators? Well, they turn their backs to the screen and look at the projector’s light. In the screening room, the speakers broadcast the roaring noise of the FED printing machines, soon to be covered by the ones of the Bank of Japan, while the rumbling of the European Central Bank printing engines heating up makes the cinema’s chairs quake.

If you ask the spectators what generates such a racket, they answer it is the sound of growth engines and boosters of the profits made for each share in take-off phase. Increase the volume again, add bass, and you will hear them swear that the intergalactic mission is established right on the top of Cape Canaveral.

Actually, another story is taking place.

On the other hand, on screen, the movie tells another story: The story of a fire truck hosing gallons per second, but losing traction in the mud, the wheels sunk to the core. Tired of steering the wheel hopelessly, Janet Yellen sits in the back of the truck next to Mark Carney, who is using one of his fire hoses frenetically and hosing all he can in a 150 foot radius.

Janet has left command of the truck to Haruhiko Kuroda, who is stamping on the gas pedal angrily, projecting a stack of recession behind the truck. The more it accelerates, the less it moves: The truck is stuck. Not intrigued at all by this fiasco, Mr. Kuroda demands even more liquidity to be poured out, while Mario Draghi looks on approvingly. Besides, the latter is ready to “do anything” to get us out of the rut — blast the car stereo, turn on the windshield wiper, get the great ladder out, electronically modify the turbo settings, etc.

On screen, the show is embarrassing. The truck, reduced to the state of a roaring geyser, gets stuck even deeper in the mud, prisoner of a mud sea that the central bankers have created in response to their desire to put a gas fire out, which should be exclusively dealt with using dry chemical extinguishers.

The mud starts to infiltrate the truck by the bottom of the doors, the exhaust pipe produces the same kind of brownish bubbles a straw would in a Coca Cola glass, and the car engines are ready to explode anytime. But Mr. Kuroda, Draghi, Carney, and even Zhou Xiaochuan, CEO of People’s Bank of China, have gathered their forces to open the main and lateral fire hoses floodgates at full.

A plethora of water springs high up and comes down, flooding the truck. It is Dante-esque: The entire neighborhood is flooded, the red truck is submerged by water, but not too far from there, the deflation/recession fire is gaining ground.

But the public remains indifferent.

The bystanders, fascinated by the projector’s light — and not by the images of the economic fiasco that fills the screen — are convinced that their imaginary rocket is reaching cruising speed; because they have paid to watch “Mission Interstellar,” the name of the blockbuster currently playing in the “Great Cinema of Alice in Wonderland.”

The soundtrack matches what they were supposed to watch on the screen, but the images are the ones of live coverage of what is going on in the “outside” world, precisely what the markets came to watch in theaters in an attempt to forget.

That is why the director of the viewing room has put the seats upside down — in the universe of “Alice in Wonderland” all tricks are allowed — and indeed, the markets find the movie great. They revel in the excessive noise amplifying by the minute and making them shiver.

The more they get an earful, the more convinced they are that the movie is indeed telling the fantastic story of Captain Kuroda and second-in-command Draghi, on the way to the galaxy outer-reaches, under the high authority of mission-chief Janet Yellen — after having refueled their spaceship on Mars where they have boarded Zhou Xiaochuan.

Nevertheless, we are not in the universe of Alice, and what’s on the program for the following weeks is not wonderful: In screen room #1, “Mario in Deflation World;” in screen room #2, “Abenomics Have Converted Japan into Titanic;” in screen room #3, “United States: The War against the Rest of the World or Recession;” and in screen room #4 “China Dozes Off” — PMI* in November, 50.3 compared to 50.8 in October — oil price plummets under the $65 mark.

In each of these movies, the billions of unfortunate extras, taken for idiots, are you and us! The only winners of this surreal farce are the cynical and incompetent producers of this pseudo-market-based economy that conspires every day to shut down the very same markets that ridiculed them in 1998 — LTCM* — and in 2008 —systemic crash.

*Glossary

S&P500: American stock market index based on the market capitalizations of 500 large companies.

Rainbow swan (neologism): Derivative of golden swan (neologism) and black swan, an unpredictable rare event that is considered almost unlikely to happen. In case it happens, the consequences are supposed to be considerable.

Permabull: Someone who is always upbeat about the future direction of the markets.

AAA: Rating given to a credit/debt/guild. The higher the grade, the less likely the creditor will default.

PMI: Purchasing Manager Index (i.e. manufacture activity )

LTCM: Long term capital management