What happens to price in a bidless market? It goes off a cliff.
As you probably know by now, it turns out lemmings didn't voluntarily commit mass suicide: they were driven off the cliff by those in charge. (See here.)
Investors in stocks, bonds and real estate are being herded off the cliff by the Federal Reserve. The name of the game in the New Normal is to force investors large and small into risk assets. When the risk assets blow up, the herd plunges headlong over the cliff en masse.
Virtually every statistic and every public utterance by Federal Reserve spokespeople or mouthpieces is designed to persuade us of several untruths--untruths that are the essential foundation of the vested interests benefiting so mightily from the corrupt, unsustainable status quo:
1. The official statistics--unemployment, GDP, etc.--are accurate reflections of actual economic activity.
2. Risk assets (stocks, bonds and real estate) are no longer risky because "the Fed has your back."
3. Too big to fail/jail corporations are the foundation of our prosperity, so no expense will be spared to bail them out and restore corporate balance sheets and profits.
That each of these propositions is self-evidently untrue creates a massive problem for the Fed: the Fed and its minions must overcome the weight of truth with propaganda and persuasion--and if that fails, then it must strip anyone who dares leave the herd of any safe returns on their capital.
In other words--if you leave the risk-on herd, you lose any hope of low-risk returns and if you manage anyone else's money, you also lose your job.The Fed is herding the crowd with financial tasers, causing anyone who veers away from the risk-on herd financial pain.
Anyone who dares to bet against the risk-on herd and the Fed: you will be destroyed.
This mass herding of investor behavior with the rewards of pseudo-safety in risk assets and the punishments of near-zero-yields on low-risk assets has a downside: when risk assets fall out of favor--that is, when risk once again becomes visible--there are no buyers left, as everyone seeking a return was funneled into risk assets long ago.
Once you funnel everyone into risk assets and then mask the risk to generate complacency, you guarantee a bidless market when risk reappears. For six long years, the Fed has acted on the dubious faith that signaling participants that risk has vanished is the equivalent of actually eliminating risk.
In other words, by ruthlessly suppressing VXX (a popular trading measure of short-term volatility), the Fed and its cronies have generated the illusion that risk has been vanquished.
This is analogous to generating the illusion of prosperity by issuing low unemployment numbers. You haven't actually moved the needle of job creation--all you've done is create an illusion of low unemployment.
The core idea here is that sustaining the illusion of growth will cause people to borrow more money and hire more people because they mistakenly believe the economy is going gangbusters. But enterprises have fixed costs that cannot be made to go away by beliefs in a strong economy, and profits don't respond to beliefs, either.
When the herd tries to sell their risk-on assets, there won't be any buyers left except the central banks. The central banks don't actually want to own all the risk-on assets; they simply wanted to con us into buying them at nosebleed valuations, to keep the illusion going.
What happens to price in a bidless market? It goes off a cliff. When the herd wants to sell, it will find no other herd of buyers; the Fed drove everyone into one herd, and now the Fed is funneling that herd off the "there's no volatility left anywhere" cliff.