From Zero Hedge:
Of particular note to me is how investment professionals are experiencing markets. What does it mean to be a professional investor or investment advisor in the Golden Age of the Central Banker? Two observations surprised me, and I believe they’re connected.
First, when I had these conversations six months ago I would get a fair amount of resistance to the notion that narratives dominate markets and that we’re in an Emperor’s New Clothes world. Today, everyone believes that market price levels are largely driven by monetary policy and that we are all being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that market price levels are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when.
Second, trading volumes are abysmal. I know it’s summer, but this is more than just seasonality. Here’s a chart using data from my friends at Barclays showing the 10-year trend in US cash equity volumes.
I love charts that require absolutely no explanation. Since the outbreak of the Great Recession, with a few exceptional months marked by panic selling, trading activity in US equity markets has done nothing but go down. And when you take into account the growth of algorithmic trading and other machine-to-machine activity, which now accounts for as much as 70% of daily trading volume, the decline in actual human beings buying or selling stock in order to acquire a fractional ownership share in an actual real-world company is much more dramatic than this chart shows.
But wait, there’s more. Here’s a 50-year chart (!) from my friends at Deutsche Bank showing the steady growth rate of trading volume in the S&P 500. With an r-squared trend line fit of 96%, this growth rate of 9.3% is an incredibly strong and stable pattern. Until late 2008 or early 2009, that is, at which point the pattern breaks like a thin, dead twig.
(For the rest of the article, click the link.)