During the last 64 months “buying the dips†has been a fabulously successful proposition. As shown in the sizzling graph of the NASDAQ 100 below, at it recent peak just under 4,000 this index of the high-growth, big cap non-financials stood at an astonishing 3.5X its March 2009 low. Moreover, during that 64 month period, there were but five minor market corrections—-the three largest reflecting just a 7-8% dip from the previous interim high. And as the index closed upon its current nosebleed heights, the dips became increasingly shallower, meaning that the reward for buying setbacks came early and often.
So yesterday’s 2% dip will undoubtedly be construed as still another buying opportunity by the well-trained seals and computerized algos which populate the Wall Street casino. But that could be a fatal mistake for one overpowering reason: The radical monetary policy experiment behind this parabolic graph is in the final stages of its appointed path toward self-destruction.
In fact, this soaring index reflects the most artificial, unsustainable and dangerous Fed created financial bubble ever. That’s because its was the untoward product of a completely busted monetary mechanism.  What has happened is that the Fed’s historic credit expansion channel of monetary transmission has been frozen shut ever since day one of the massive Bernanke monetary expansion which began in August 2007, but went into warp-drive in the weeks after the Lehman event a year later.
Yet this madcap money printing campaign was a drastic error because it failed to account for the immense roadblock to traditional monetary stimulus that had been built up over the last several decades—namely, “peak debt†in the household and business sector. This condition means that monetary easing and drastic interest rate cuts have not elicited a surge of consumer borrowing and business capital spending and hiring as during past business cycle recoveries.
Instead, the entire tsunami of monetary expansion has flowed into the Wall Street gambling channel, inflating drastically every asset class that could be traded, leveraged or hypothecated. Stated differently, 68 months of zero interest rates had virtually no impact outside the the canyons of Wall Street. But inside the casino, they provided virtually free money for the carry trades, causing an endless bid for leveragable and optionable financial assets.
