Pavlov’s Dogs

Pavlov trained his dogs to salivate when a bell was rung. Wall Street has trained its algos – automated traders – to buy stocks and sell bonds when bad economic news and central bank jawboning portend more QE.

The result is a stock market that becomes more bizarrely overbought and overvalued every day and a Treasury bond market that offers great value. Consumer and commodity prices are in decline, and it seems certain that a global recession has begun, although that will not be confirmed for some months.

A sudden and steep decline (avoiding the c-word) seems inevitable as divergences grow.

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