Markets make you laugh sometimes, they really do.
Back in 2012, the euro fell to roughly $1.20 to the US dollar. Investors were terrified that the single currency was going to explode, and they didn't want to be hit by the shrapnel when it did.
Of course, European Central Bank boss Mario Draghi stepped in to calm everyone down. And the euro gradually recovered.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, now it looks as though the euro is heading back towards those lows. Yesterday, it slid to its lowest level since late 2012, a bit below the $1.24 mark.
But this time it's not because investors are terrified that it's doomed.
It's because they're more confident than ever that it can be saved.
Draghi gets the go-ahead for money printing
The euro is on the slide for one simple reason. It's because Mario Draghi looks like he's got the all-clear to go ahead with quantitative easing (QE).
The ECB boss told investors yesterday that the whole of the ECB's governing council the team that sets monetary policy was behind his plan to pump around a trillion euros into the economy.
Basically the ECB wants to increase its balance sheet to the same level it was at in early 2012. In other words, it needs to buy a lot more stuff.
Draghi has already said all this. He said it a couple of months ago when he announced the latest big plan for money printing. But as usual, a few narky comments from the Bundesbank got everyone worrying that the Germans weren't on board with his plan.
As Joseph Kramer of Commerzbank told the FT, this shows that Draghi is "the boss".
Now we'll no doubt see more skirmishes and grumpy comments from Germany before we get more action from the ECB. But if Draghi gets his way and the ECB can print money via lots of routes, it doesn't necessarily have to buy government bonds outright then a load more money will be finding its way into the eurozone in the near future.
And what have we learned about QE so far? Well, if you've been paying attention, it's that QE makes currencies go down, and stocks (and bonds) go up. That's why the euro has fallen, and eurozone stocks got a bit of a bounce.
If you combine this with Japan's expanded money-printing plans, then 2015 looks like it'll be even more awash with central bank funds than this year was.
So if you were wondering why markets have taken the end of US quantitative easing with such equanimity well, this might just have something to do with it.
Investors have been trained to buy the dips
Behavioural economist James Montier, who now works for US fund manager GMO, wrote an interesting piece on the impact of QE not long after the financial crisis kicked off. He was looking at a study that used simulations to try to look at what central banks could do to short-circuit the process of reversion to the mean'.
In other words, if investors had been burned by a bursting bubble, was there anything you could do to tempt them back in, other than let prices crash?
Turned out, you could. The study basically found that if you did a QE-style intervention that was big enough for long enough, then you could tempt investors back into the market time and time again. In short, you could train them to buy the dips'.
The real world evidence has proved the theory correct. We've seen one of the longest periods on record without a proper' correction. And as Jared Dillian pointed out in a recent column for Mauldin Economics, investors are so confident these days that as a group they are short volatility'.
That sounds complicated. But all it really means is that investors have been programmed to believe that nothing can go wrong, now that central banks are underwriting pretty much every bet in the market.
That's pretty scary.
But as it stands, it's just yet another indicator to add to the surely this represents a top in the market oh no, it's just gone even higher' collection.
The reality is that as long as you have a price-insensitive buyer standing waiting to purchase just about any asset you care to think about, then the rules of supply and demand suggest that prices in general will keep going up.
What you really have to ask yourself is not "is this market overvalued"? It's "What would stop central banks from buying? Or what would make central-bank buying ineffectual?"
There are a few things that might fit the bill. War is a nasty one. An eruption in inflation is another. We'll take a deeper look at those in future Money Mornings.
But what can you do in the meantime? Well, there is a bit of a bright side. US stocks look very overpriced compared to history. But the markets being targeted most directly by the new QE Japan and Europe are both still relatively cheap. And that suggests it makes sense to invest in them.
I've written about ways to buy into Japan in the latest issue of MoneyWeek magazine, out today if you've yet to invest in the country, make sure you read it.
And if you haven't yet looked at who won the first MoneyWeek reader awards, go check it out now thanks again to everyone who voted.
Our recommended articles for today
Before I invest in any company, I study this list
Checking a company's shareholder register is essential, says David Thornton. You can tell a lot about a stock by seeing who your fellow investors are.
Stick with Japanese stocks
SUBSCRIBERS ONLY
It's been a tough year for the country, but an expanded QE programme and a falling oil price mean investors should stay put, says John Stepek.
On this day in history
7 November 1917: The Russian Winter Palace falls
On this day in 1917, the seat of government the Winter Palace in St Petersburg fell to the Bolsheviks, cementing communist rule in Russia.
