Forget for a moment the "panic" that is happening in U.S. stocks. Forget about the panic in China FXI, -0.93% . Forget about the panic in Apple AAPL, +3.03% . As I argued several weeks back and have written about continuously since, the odds simply have been favoring a summer stock-market correction given the behavior of key inter-market relationships outlined in our award-winning papers (click here to download). Something far more important and spectacular may be underway which likely will only be realized and appreciated after the damage is done.

The illusion of stock-market stability is fading, and the Last Great Bubble — faith in central banks — may be starting to pop.

Just as everyone is talking about the Fed raising rates in September and "lift off" finally occurring, the global growth and inflation story is dramatically reversing. It turns out quantitative easing did absolutely nothing for the economy, and it turns out that Europe's own version of QE simply isn't working to boost reflation hope.

“ "We are all ordinary. We are all boring. We are all spectacular. We are all shy. We are all bold. We are all heroes. We are all helpless. It just depends on the day." ” — —Brad Meltzer

For too long, market participants have been sucked into the idea that the S&P 500 is the money market (as I said on CNBC here). Lower for longer has now become an excuse for too long to buy U.S. markets and believe that risk does not exist when central banks "have our backs."

The narrative may be on the verge of a significant change. At some point, we have to stop endlessly debating the question of "when" the Fed will raise rates. Instead, we must begin to question what is so wrong with the environment that has resulted in them not having raised rates yet. Unquestionably there are long-term structural forces at play which have been disinflationary, but the bigger issue is that the U.S. stock market turned from a discounting mechanism of the future to yet another failed vehicle for stimulus under the guise of the "wealth effect."

Take a look below at the price ratio of the iShares Russell 2000 ETF IWM, -3.50% relative to the S&P 500 SPY, -1.11% . As a reminder, a rising price ratio means the numerator/IWM is outperforming (up more/down less) the denominator/SPY. There is a massive point to be made here.

Notice that after the past five years, dominated by central bank actions, small caps relative to large caps are essentially nearing their lows. Why is this important? Because small caps are more sensitive to domestic growth and inflation prospects than multinational large caps. Yet, despite all of this domestic stimulus done by the Fed, price action says it simply hasn't worked.

A critical point in time has arrived to re-evaluate everything you think you knew about markets in the small sample of the last few years. As I have continuously been saying, the magnitude of being right matters far more than the frequency. If indeed the summer correction is underway, many will be shocked at what may be to come.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.