Remember when we were sitting at 1 having fallen from 2 in what seemed like a few days?
The idea of ever being at 3 in our lifetimes seemed utterly ridiculous.
Hell... suggesting we might make it back to 2 was enough to get anybody branded an idiot.
And yet here we are.
With a bullet.
Actually, not with a bullet, but with an arsenal of central bank ammunition that, had the level of it been suggested when we were wallowing at 1, we'd have, once again, called for the straightjackets.
TARP's $787 billion was deemed such an outrageous amount of money that Congress actually voted it down because they couldn't believe such a sum was either needed or warranted. At least the reaction to that decision was predictable:
Thus was the relationship between the denial of stimulus dollars to markets and the possible (terrifying) adverse reaction to it cemented.
Now, just a mere 6 years after the world was languishing at 1, watching all the wealth that had been created in the surge to 2 evaporate and truly believing that we would never again reach 2, we find ourselves at 3.
The trouble with 3 is that it's an inconceivably long way down to 1 again from there. Hell, I get vertigo just looking at 3 on that chart.
Stepping back and looking at this chart makes you realise (or should do) just how stretched we have become.
Margin debt levels? S-T-R-E-T-C-H-E-D
Length of time without any major correction? S--T--R--E--T--C--H--E--D...
But most importantly of all, Central Bank credibility? O-V-E-R-S-T-R-E-T-C-H-E-D
There is no recovery (at least not the kind of recovery that the world believed you could buy for $4 TRILLION as it lay at 1), there is no growth (certainly not the kind we believed we saw at 2 - even if it did turn out to be an illusion fuelled largely by credit expansion) and there is no good reason why we should find ourselves at 3.
But there are reasons.
Central bank stimulus, a corporate debt binge, monumental levels of share buybacks, multiple expansion, the intentional removal of coupon interest as a viable means of saving and faith in the omnipotence of central banks just about covers it.
However, that omnipotence is not what it seems (it never is) and in his book, Stress Test, the person who held the office of Treasury Secretary before Jack What's-his-name, Timothy Geithner, laid the reality of central bank omnipotence bare for the world to see. Unfortunately, nobody seems to have been listening:
(via Zerohedge): T]hings deteriorated again dramatically in the summer which ultimately led to him saying in August, these things I would never write, but he off-the-cuff – he was in London at a meeting with a bunch of hedge funds and bankers. He was troubled by how direct they were in Europe, because at that point all the hedge fund community thought that Europe was coming to an end. I remember him telling me [about] this afterwards, he was just, he was alarmed by that and decided to add to his remarks, and off-the-cuff basically made a bunch of statements like ‘we’ll do whatever it takes’. Ridiculous.
Interviewer: This was just impromptu?
Geithner: Totally impromptu…. I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.
That's how 'calculated' the ECB's actions were (and, doubtless, are) and, based on the statements of recent departees from inside the Federal Reserve, there is a similar level of competence at play there too. The BoJ? Well if they have ANY plan beyond "print it and they will come" then they've yet to articulate it and Mark Carney is (quite rightly) in hiding.
At 1 we longed for 2 and daren't even dream about 3.
At 3, 2 seems like a world away and we barely remember 1.
But, as I wrote in my most recent Things That Make You Go Hmmm..., 'Mercury Rising', the warning cries are coming thick and fast and from an ever-more impressive array of voices. To that list, in the last week alone, we can now add Felix Zulauf and Julian Robertson.
The countdown has begun.