Confidence in the absolute efficacy of Fed intervention breeds complacency, which is the essential backdrop of stock market crashes. Crashes don’t arise from a skittish herd, they arise from a complacent herd.
So far the herd has been religiously buying the dip. But as with any herd, that behavior can flip in an instant. Once it does, watch stock markets plummet as investors look to unwind their positions. Right now the only thing keeping stock markets high is trust that the Fed will step in and fix anything that goes wrong. When that trust begins to erode among more and more investors is when the great unwinding will begin.
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This article was originally posted on Goldco.
