Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As any who have held any volatility ETFs in their portfolios of late can attest to, sharp movements in the market have been nearly eradicated in 2012. And any that do occur, are to the upside. Remarkably the largest loss for any one day in the S&P 500 for the year was essentially half a percent (0.57% on Jan 26th). Bespoke Investment blog notes it has been 26 sessions since we’ve seen a 1%+ drop in the index, the longest streak in a year. The last occurrence of such an event was December 26th.
Of course the last two similar periods were (wait for it)…. during a period of massive central bank easing. The longer we go like this, the more it seems likely that market participants are treating the ECB’s LTRO as an event similar to QE. Speaking of, there is another round of LTRO at the end of the month – market talk is this one could see absorption of $1 Trillion – which would dwarf the last round.
If you believe in the “central bank liquidity trumps all else” theory or not, as Ritholtz said in the video yesterday – this is what the market currently believes. That said, even during the huge run while QE2 was running we had some modest corrections…
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
