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Of Smart Central Bankers, Drunken Snakes, and Stock Prices

If this is a snake…

Then what is this?

A drunken snake?

Yes, you are right, this is a drunken snake! And why not? If a sober can walk like a snake under the influence of alcohol, a snake can move like a sober under the influence of alcohol.

At least, that is what we can safely assume.

But why talk about snakes and their post-drinking movement here? Isn’t this a platform where we should discuss about just investing and the stock markets?

Yes, dear reader, you are right! But there is an analogy that we can draw between the drunken snake example and what’s happening in the stock markets right now.

And how?

Well, this is how the stock markets behaved before the financial crisis set in 2008.

So, stock prices were moving like a snake, albeit a well-behaved snake.

But as the crisis set in –and remember this crisis was caused by cheap money (we call it the ‘drug’ or ‘alcohol’ as per our example) – this is how stock prices started behaving…

…still moving like a snake, but one that had lost its way.

But the global central banks – led by the US Federal Reserve – were smart.

They had heard about the drunken snake analogy, and thus knew what to do to make it move straight – just give it an extra dose of alcohol!

And, voila, look what has happened to the snake that had lost its way…

This snake – that we know as stock markets – now hasn’t just lost its way.

It has become hopeless…all under the influence of cheap alcohol…I mean…hic…cheap global money!

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

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