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Can U.S. Financial Authorities Prevent a Bear Market?

Central banks do not control the psychology or behavior of investors

by Bob Stokes
Updated: October 15, 2019

Elliott Wave International has long demonstrated that the only "force" big enough to govern the trend of stock market prices is the collective psychology of all market participants.

Yet, when investors are "surprised" by the market, we still hear claims that price trends are influenced by groups that range from the Rothschilds to the Illuminati to the Masons to the Gnomes of Zurich.

Of course, one of the biggies is the Fed. A lot of people believe that central banks hold sway over economies and the financial markets. Another group has been the so-called "Plunge Protection Team."

Let's go back to our March 2007 Elliott Wave Financial Forecast for elaboration:

The President's Working Group on Financial Markets, a.k.a. the Plunge Protection Team, said no [new hedge fund] regulations are needed because "the current system for preventing market collapse and widespread investor losses is 'working well.'"

This "plunge protection team" group included the heads of the SEC, Treasury Department, Federal Reserve and the Commodity Futures Trading Commission -- an elite group indeed.

Even so, some seven months later, the DJIA topped and went on to "plunge" 54% into March 2009.

What does this have to do with today?

Well, on Oct. 9, no less than the chief economist for a major international bank said (Marketwatch):

"Central banks will always step in with more QE and easy money to limit any widening of credit spreads and declines in the stock market."

But, EWI's analysts warn against viewing central banks as a "safety net" for stock market investors.

As a 2019 Elliott Wave Theorist noted:

[There's] the notion that the President has browbeaten the Fed into dovish submission, so stocks can only go up. The argument is false on two fronts: that the Fed has changed its policy, and that it would matter if it did. When setting its own rates, the Fed has always simply followed the T-bill rate set by the market, with an average lag of five months... Even if the Fed were to change its interest-rate policy, it wouldn't matter, because it cannot force people to borrow.

Also, central banks cannot force investors to buy stocks when collective psychology turns negative.

Again, just think about 2007, and the idea that the Plunge Protection Team could prevent a "market collapse." Just the opposite happened.

No, financial authorities cannot control investor psychology, which unfolds in repetitive and predictable patterns known as Elliott waves.

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