Correlation Of S&P 500 Performance With Fed Monetization Activities Since Start Of QE

Tyler Durden's picture

The chart below requires no substantial commentary suffice it to say that since the launch of the Fed's Quantitative Easing, aka Monetization, program, the value of the Total Securities Held Outright on the Fed's Balance Sheet has increased by $917 billion- from $584 billion to $1.5 trillion. This has been accompanied by an almost linear increase in the S&P 500 Index, from 721 at QE announcement on March 18 to 1033 yesterday. This $917 billion in extra liquidity, instead of igniting an inflationary spark, as the QE program was designed to do, is now (metaphorically) sloshing around bank basements. As a reminder: the most recent reading of Total Deposit Reserves was... $886 billion dollars: An almost dollar for dollar match with the increase in Securities Held Outright of $917 billion. And instead of this excess money hitting broader aggregates such as M2 or MZM, it is held by the banks, who proceed to buy securities outright on their own, either Treasuries or Equities. Apply the proper "money multiplier" to get the monetary impact on the S&P 500, as a result of the banks not lending these excess reserves, and instead simply speculating with it, and you will likely get the increase in the market cap of the S&P since the launch of QE.


Source: H.4.1

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the fox's picture

Have you tried correlating the timing (intraday) of the MoMo's vs intraday spikes in the SPX? I have been unable to pull it with the Bloomie, but have the feeling the correlation will be almost as direct...
What is you data source, btw?

loans's picture

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Anonymous's picture

this confirms a theory which many here have held
regarding the direct relationship between
equities and qe....

some on another thread ($5.1 Billion In Outflows For Domestic Equity LT Mutual Funds Over Past Month) seemed to find another cause for the bull run...

for now, i am sticking with the qe theory....

as for the effects of qe about which everyone
wondered when the roost was going to come home to
roost: the usdx is in the 76.60 range as of now...
undoubtedly it will rebound later in the day but
overall this is part of a substantial downward spiral all
week....the decline is very large for what is
supposed to be a store of wealth (i say that
tongue in cheek and with contemptuous irony)

Anonymous's picture

Isn't the QE supposed to end in October? Might we see a decline then....

Gordon_Gekko's picture

Are you really sure it began when they "announced" it?

Anonymous's picture

Looks like certain insiders were probably notified on or about March 4th.

As for QE ending in October? Hah! They need people out Christmas shopping & the banksters want their year end bonuses too.

One of two things will happen. Either QE will become more 'back door' - loudly shutting down a few minor programs and quietly increasing the lesser understood ones

- or -

There will be a sharp drop that will be enough to scare the gov't into providing a six-month extension but not a sharp enough drop to really shake confidence. And then the 'rally' will continue or at least bounce back.

Anonymous's picture

Bonuses are dead. There will be bonuses anymore.

Anonymous's picture

Yes. I noted the announcement right after the march low, at the exact time we hit the bollenger band resistance when one whould have expected a bounce back, then come close to the low again then go up through. this happened at teh same time as a numbe rof strange things that came out of the governemtn every time restance levels got hit."greet shoots", etc. this happens over and over again. Bernake's little speach from jackson hole in the moring just happened while the s%P was at long term resistance trned from the market peak. that was followed through via a short squeeze on AIG which jumped the market up a few points to contine the climb. I pointed this out to the FT, but of course you can't have that kind of story in a respected papaer can you. to their credit, they did mention a week later that the market had been brought up via a short squeeze

Sardonicus's picture

Read about Moore and Schley in 1907.

The exit door will be too narrow whne they want out.  God only knows how this borrowed cash was leveraged.

March 2009 gave us the bounce everyone was looking for and it was much bigger than almost anyone could have dreamed.  However, everyone is looking for a correction and it too may surprise.  All we need is a reason for those banks to need that cash back.  So long as they can make 3-10% a month in equities they have no reason to lend it.



Anonymous's picture

If it's between loaning money and getting $.50/$1.00 back or throwing it in the market, I'm not sure they've made the wrong move... And until regulators and rule makers stop the accounting shenanigans, they can continue to operate in a very "undead" manner.

Anonymous's picture

When the Fed 'ends' Qe they/treasury are going to use PPIP to pump things. Of course the fed can still use their retail arms (GS, JPM, etc to 'control' things).

Anonymous's picture

When the Fed 'ends' Qe they/treasury are going to use PPIP to pump things. Of course the fed can still use their retail arms (GS, JPM, etc to 'control' things).

ghostfaceinvestah's picture

Only the Treasury purchases, the MBS purchases will continue unabated.  I have said here before that I thought the S&P could easily reach 1200 by year's end, solely on the back of excess liquidity.  If the MBS purchases continued through 2011 like I think they will, the S&P could reach 2000.

However, this would come at great cost to the dollar.  So far there hasn't been any political backlash to Bernanke destroying the dollar, but ultimately it might come.  If that happens, and he is forced to stop his MBS purchases, look out below.

At 1050 on the S&P we are at the equivalent of October 1999 on the NASDAQ - just starting the really big liquidity ramp.

The sad thing is this sort of BS really leads to dislocations in the real economy, as bad business models are perpetuated and crowd out new, better ideas, but I am beyond caring about that.  At some point I will be turning my bets against the dollar into bets against the stock market, and will be able to retire early.

Watch the MBS purchases for your clues.  When those end, the time to go all-in short will be near.

Anonymous's picture

Where is the best place to track MBS purchases?

Gordon_Gekko's picture

I think you are spot on with this one ghostface (IMHO, you usually are). The New York Fed's site has this helpful factoid in it's MBS Purchase Program "FAQ":

"Purchases began in early January, 2009and will continue until the end of 2009."


"How are holdings under the agency MBS program reported?"

"Balance sheet items related to the agency MBS purchase program are reported after settlement occurs on the H.4.1. statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks." Securities acquired in dollar roll transactions are also included with other holdings of agency MBS.  Trade settlements may occur well after trade execution due to agency MBS settlement conventions.  This report also includes information on total outstanding commitments to buy and sell MBS in a supplemental table.  

In addition, the New York Fed publishes the most recent weekly SOMA agency MBS transaction activity in more detail on its external website on a weekly basis."

Is this the best way to follow this idiocy? Is it possible they do stealth monetization of MBS's like Treasuries (ala "indirect" and other nonsense)?

Anonymous's picture

No wonder volume has fallen off the cliff, the FED has been buyer of last resort, and they don't have anybody else to sell to. As long as the large HFT / quant guys push 4-10 stocks around each day and it looks like something is happening, the FED's positions, and thus the market, look ok.

But when the music stops there will be a lot of people without chairs to sit in...and the market should fall flat on it's tuchus!

Gordon_Gekko's picture

"...people without chairs to sit in..."

Golden chairs, my friend, Golden.

Anonymous's picture

They wheeled out the silver boogieman again yesterday.

Atlas_mugged's picture

Good stuff as always TD. Too bad that reality doesn't matter.....yet.

Anonymous's picture

S&P only went to ~715?

Anonymous's picture

weekly close sherlock

Anonymous's picture

Looks to be closing price each Wednesday. March 4th @ 713, March 11 @ 721.

chumbawamba's picture

That graph looks like a representation of a cum shot, right into the eye of the American people.  Thanks, Banksters.  May I have another?

I am Chumbawamba.

Anonymous's picture

you greedy little boy....just for that bend over
and sqeal like a pig...

SWRichmond's picture

Chumbawumba is a twenty-something, I take it?

Anonymous's picture

What gave it away, the self-absorption? The self-importance? The 'crass is cool' thing? The mandatory lewdness? Or the Bark at the Moon insanity? Ah , today's twenty somethings...enjoying your Obamaian Paradise, kids?

MinnesotaNice's picture

Imho Chumbawama is a highly racist 'perhaps 20-something' individual... and personally my least favorite commentator on this site... we are lucky we didn't get the highly offensive word '' thrown in with his comment... it is one of his favorites.

deadhead's picture

chumbawamba adds virtually nothing to zh.

his/her comment on al qaeda last nite was absolutely shameful and moronic.  

Spartacus's picture


MinnesotaNice's picture
I'll let DH post what he was referring to if he wants, but here is one of Chumbawamba's contributions (referring to Obama) and my response last week: by chumbawamba
on Sat, 09/05/2009 - 22:12

He's a nigger, not a nigga.

I am Chumbawamba.


by MinnesotaNice
on Sun, 09/06/2009 - 09:45

You know what Chumbawamba... I think I might have to ask Heli-Ben on his next fly-over of South Central LA to drop you off in the northwest corner neighborhood near the 110 and 105 interchange wearing a blue bandanna... with that comment pinned proudly to your chest... and I would suggest immediately upon your arrival you begin discussing all of these types of thoughts with as many people as you can find... you are one of the most offensive people on this site... imho... you really ought to do a little historical reading and develop a more refined sense of empathy...

chumbawamba's picture

I add nothing to the site, except (apparently) for a chain of comments from a bunch of thin-skinned hippies with apparently little or no social life, other than what they find in online comments they share with the same.

Americans have many great qualities, but criticial thinking skills are not among the set.

I am Chumbawamba.

Anonymous's picture

"I add nothing to the site, except (apparently) for a chain of comments from a bunch of thin-skinned hippies with apparently little or no social life, other than what they find in online comments they share with the same.

Americans have many great qualities, but criticial thinking skills are not among the set.

I am Chumbawamba."

You know, you shouldn't had made that broke character.

I think he has a dopple too.


Anonymous's picture

...and I bet you call yourself a Christian right? You like fucking with people and calling them hippies and n*****s? Picture 1969, the so-called summer of love, picture Woodstock and all those hippies. Now picture them with NRA memberships. I bet you fascist right-winger types will feel kind of awkward when the Liberal Loonies start playing you at your own game and begin showing up at your stupid shooting ranges. Imagine a dread-locked caucasian in a "meat is murder" tree-hugging t-shirt practicing his 80 ft. shot with his 45 in the lane right next to yours. This is what's going to happen. And the Left Loons and the Righty Tighties will start another Old West in this country before too long. All calling themselves Christians no-less. So-called capitalists vs. so-called socialists. We don't need your fuckin' extremest views in this country, hypocrites.

Anonymous's picture

If he gets your panties in a bunch, why do you troll his posts?

TumblingDice's picture

At first I was going to steer wide of this passionate conversation but some chemical imbalance in my brain has forced me to start pounding the keyboard.

Let's not make this personal. I am all for attacking chumbawamba for his racism. That has no place on this site. But his personal style, while hard to seperate from his racist viewpoint, should not be in question. And neither does it help to constantly bring up the previous racism.

And to the anonymous poster above, let me assure you that lewdness and crass is not as typical of twenty-somethings as you may think. So let us not make this about age either.

Ideas are the things that count and I hope we center our discussion around them. Intelligence is abundant in this forum and with it comes the ego. If we divert the conversation from ideas then all we are left with is the ego and that does nobody any good.

MinnesotaNice's picture

Those darn chemicals will get you every time.  I agree with your post... and I also agree Chumbawamba actually has good thoughts from time to time... however they are miniaturized by his racist rant that seems to come out of nowhere.  Now you and I have had some fun conversations in the past so I think I can go here with you (I hope I'm not wrong because I wouldn't want to offend you)... let's intellectualize this conversation to a different level... let's say every time you read a post from Chumbawamba he puts in the phrase "People Like Tumbling Dice are Asswipes" rather than ''... what would you think... would you want the entire ZH community to remain silent and say nothing... I know you would likely personally sweep the floor up with him... but if the ZH community does not say that this is inappropriate then it can only be assumed that they are in tacit agreement... and then that becomes reflective of the ZH community.  There are black people on this website (however I am white) who love reading the material here... and how do you think they feel when they read Chumbawamba and his " rant".  I will tolerate just about any freedom of expression or idea... listen to any new thoughts that someone has... and step into someone's shoes that I haven't worn before... but I will always speak up against offensive, hurtful racist remarks.  You are right that ZH is a place of new, interesting, and different ideas... so we should try to stick with that as much as possible imho.

TumblingDice's picture

Minnesota, talking to you brings a smile to my face; so let me just say that I think you would have a hard hard time offending anyone, especially a thick skinned simpleton such as myself, even if you tried. This is a trait that is very undervalued nowadays and I appreciate it a lot.

We are on the same page: we will both speak against racist (and other egregiously wrong) remarks vehemently, no question about it, and hopefully the mettle of this forum will be determined by how we react to different remarks. But I think speaking against chumbawamba and bringing up his previous racist remarks is the wrong move here. It is sort of like forcing someone into a corner and eliminating all escape routes. Prejudice is infectious and hopefully we can keep it out of this forum.

MinnesotaNice's picture

I agree with you entirely... and I perhaps should not have thrown his remarks in his face... leaving him little ability to save face if he wanted.  And I love talking with you also :-)

Rusty Shorts's picture

 - actually he is 12 years old, and lives in a detention center located in Mississippi.

Careless Whisper's picture

Chumbawamba is chill. Lighten up.

Anonymous's picture

so let's take this a step further to trace the flow of funds...let's say that the relationship between qe and sp500 rise is causal....

in qe, the fed buys securities (bonds or mbs) from either
primary dealers in the case of the former or banks/freddie/fannie/others in the case of the latter....would pds turn around and buy stocks? i would think they would buy more bonds from the
treasury or open market....the banks i can see buying

with mbs being the largest part of qe at about 1.2t usd and with 800b being redeposited with the fed it seems that 400b usd is what is driving the equities run-up...which might explain the light volume because 400b usd is a very small amount of money compared to the equities market....

that's my theory for now....not sure if it stands the acid test of critical examination....i suspect that other ppt elements are purchasing stocks but in terms of visibility this seems to be all for which we can account.

George the baby crusher's picture

Well blow me over with a feather.

Anonymous's picture

This is very succinct and important analysis. Valuations , sentiment , technicals - none of it matters with the QE monster. Flight from dollar and stimulus measures are unsustainable and when either of those dynamics ends , look out below.

Gordon_Gekko's picture

Is there any doubt in ANYONE'S mind at this point that the Fed is doing stealth monetization of the Treasuries way above and beyond what they have announced? If so, please go see a psychiatrist. In fact, I will not be surprised if the majority of "indirect" is the Fed itself. This is Benny boy's gift to the Dollar-Deflationists of the world. Also, I'm not sure if the Fed adheres to elliot wave "principles" while gunning the market...wait...did I just see Fed do 1-2-3 of an impulse a-b-c up? WTF? LOL.

tontoe's picture

I don't know why Leroy Smith was the first thing I thought of when I saw this graph.

And it compelled me to make this :