Both Chinese & European manufacturing contracted more than expected yet markets rallied on ‘hopes’ of central bank stimulus. When bad news is perceived as good news, showing a disconnect between expectations and reality, you know we’re near a top in markets.
Pundits still believe in the myth that central banks accommodative actions will make it easier for banks to borrow and lend. However, credit deflation is an irreversible force because if people are unwilling to borrow, and banks are disinclined to lend, central bankers cannot force them to do so. They can’t even induce them to transact with interest rates at zero percent – at least not during a major downturn in social mood as reflected during a deflationary environment (as is now developing globally and just as Japan has already shown over recent decades).
