When Central Banks Run Out of Ammunition, Start Re-pricing Lower!

The markets have to adjust to a new paradigm with less liquidity. In the recent years, markets have priced itself well-above the growth of the global economy and beyond fundamentals, while the difference/gap between the high market prices and the low growth global economy had been usually covered by cash injections of the Central Banks (Markets’ Best Friend) around the world or borrowing from somewhere else cheaply as interest rates were low.

However, it is time for the markets to reprice itself lower as central banks have already run out of ammunition to fuel the market with another round of cash injections to stimulate the economy. Even if central banks maintained or reduced interest rates, this won’t affect the state of economy that is either slowing down or plunging into Recession.

Now, most of the markets are overleverged and need to sell to raise cash; especially those who depend mainly on China and Emerging Markets.