Technically Speaking: Too Fast, Too Furious as Fed Liquidity Slows

by Lance Roberts
Real Investment Advice

Too fast, too furious. That describes the April/May advance following the fastest 30% decline in history. The reason was not an improvement in fundamentals, but a generation of investors front running Fed liquidity flows.

Such should not be surprising as this is what was intended by the Federal Reserve from the outset. The Fed delved into “classical conditioning” to specifically obtain the outcome they wanted.

Classical conditioning (also known as Pavlovian or respondent conditioning) refers to the learning procedure where a potent stimulus (e.g., food) is paired with a previously neutral stimulus (e.g. a bell). Pavlov discovered that when introducing a neutral stimulus, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not currently present. This learning process results from the psychological “pairing” of the stimuli.

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