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Why The US Will Underperform Europe Again In 2013, Or The Strangest Chart You'll See Today

Tyler Durden's picture




 

It should come as no surprise that the relationship between the balance sheets of the world's major central banks and risk assets in general are relatively closely correlated (that is not to say dependent to avoid the causation/correlation 'out'). A great example is the tight coupling between the EURUSD exchange rate and the ECB and Fed balance sheets over the past few years - and just what the EURUSD (market) is implying about forward central bank action.

 

As Mark Faber has noted in the past though, the flood of liquidity from central bankers has the unintended consequence that they 'don't know' where that money will sloosh next. 2012 saw European stocks dramatically outperform US stocks, despite the 'unresolved issues', and the chart below of lagged performance of US over European stocks relative to the Fed and ECB balance sheets, suggests that this 'catch-up' of Europe has considerably more legs going forward even as the Fed's balance sheet is set to expand by $1trillion this year. A strange chart indeed...

 

Critically, while the global 'currency war' may be a zero sum game, the impact of the rise in global money 'supply' is not and that liquidity flows somewhere. It seems for most of the 2008-2011 period, it was the US' turn, but given the US relative richness on valuation, it would appear reality has caught up and now it is Europe's turn to benefit nominally.

 

Fed/ECB balance sheets are expected to be around 1.2x by the end of 2013 (perhaps less if the ECB is forced into OMT - though given Spain's comments it would appear that is less likely for now)... that would imply the S&P 500 falls from 55% of the EuroStoxx 50 to around 50% of it - underperforming - though of course both could nominally rise...

 

 

Chart: Bloomberg

 

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Tue, 01/08/2013 - 15:40 | 3133784 LawsofPhysics
LawsofPhysics's picture

The Euro/Dollar argument is another divide and conquer tactic.  In the western world, there is only the Fed.  While it's fun to front run the idiocracy in the currency wars, in the end, it's the same wizard behind the curtain and the paper promises are no different.  There is no doubt that all central banks are printing and if it's come to arguing over who is printing faster and who the real sucker is then we are much further along than you think.

Tue, 01/08/2013 - 15:59 | 3133854 gjp
gjp's picture

Exaclty, LoP, +1.  It's all about the Fed printing the global reserve currency until it blows up, and then it gets physical (trade, wealth, violence).

Tue, 01/08/2013 - 16:07 | 3133879 narnia
narnia's picture

the whole currency war narrative is nonsense.  the centrail banks of the US, EU & especially Japan are in crisis mode.  there's little method to their madness other than (1) what benefits their member banks & (2) what reduces borrowing costs for their partner governments in crime.

Tue, 01/08/2013 - 18:28 | 3134310 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Everybody says this ends in war. But we already have war: financial war. The Anglo cartel has controlled the narrative for a while (oh oh look how bad the Euro area is) while US debt/GDP, trade, etc is even worse. Now the Japanese are going all "assymetric warfare" and instead of trying to get theirs to decline, they'll try to get the other guy's to rise (purchase EUR bonds)

This probably means that BenB will start buying Chinese stocks or something wack like that

It ends in tears but for now it's PARTY ON

Tue, 01/08/2013 - 15:39 | 3133790 SheepDog-One
SheepDog-One's picture

Dotted straight up arrow lines appear to be a bit of wild best-case guestimation? Looks to me like lines going down with projected wild upswings, sorry if I call bullshit.

Tue, 01/08/2013 - 15:41 | 3133794 Motorhead
Motorhead's picture

Charts, bitchez!

Tue, 01/08/2013 - 15:42 | 3133795 AccreditedEYE
AccreditedEYE's picture

though of course both could nominally rise...

Both "WILL" nominally rise... Fixed it for ya. BTFD

Tue, 01/08/2013 - 15:47 | 3133814 CPL
CPL's picture

BTFD Infinity.

Tue, 01/08/2013 - 17:19 | 3134130 SheepDog-One
SheepDog-One's picture

Sure hope you guys do realize that the only reason to pump, is to dump....I don't know how you've figured that date but good luck.

Tue, 01/08/2013 - 15:43 | 3133799 Sudden Debt
Sudden Debt's picture

where can I buy FED stocks or options?

Tue, 01/08/2013 - 15:47 | 3133812 CPL
CPL's picture

Any bank, cashier or pawn shop.

Tue, 01/08/2013 - 15:45 | 3133805 fonzannoon
fonzannoon's picture

Well when they end QE later this year a lot of people are going to (laughing hysterically)

I can't....I can't...

Tue, 01/08/2013 - 15:48 | 3133817 CPL
CPL's picture

doeeet!

Tue, 01/08/2013 - 15:48 | 3133816 buzzsaw99
buzzsaw99's picture

I don't recall your name but your FEZ is familiar. [/austin powers]

http://www.youtube.com/watch?v=1pyc2ZFPc1s

Tue, 01/08/2013 - 16:44 | 3133880 Kilgore Trout
Kilgore Trout's picture

Aint never gonna do it without the fez on. [/Steely Dan]

http://www.youtube.com/watch?v=AlfUwSuzu9E

Tue, 01/08/2013 - 15:54 | 3133829 Never One Roach
Never One Roach's picture

"Forward!"

Tue, 01/08/2013 - 16:00 | 3133858 Confundido
Confundido's picture

Tyler, I reached the same conclusion, mostly if and because of the Japanese central bank purchases of European debt. What's your opinion? How significant can these be? Otherwise, why would capital continue to flow to the EU?

Tue, 01/08/2013 - 18:09 | 3134275 Ghordius
Ghordius's picture

BoJ wants to inflate a LOT. They have to buy "something", and in big quantities, and they already have plenty of USDs

Tue, 01/08/2013 - 16:12 | 3133868 Haole
Haole's picture

Cool.  Those little duets of chartology somehow bring to mind the old MacLean & MacLean cover of Bitter Reality. 

 

http://tinyurl.com/ah3q5qs

 

Could WB7 have a few laughs with this?

Tue, 01/08/2013 - 16:12 | 3133891 Clowns on Acid
Clowns on Acid's picture

Jim Rogers is correct in his 1 yr old thesis " The Fed will print because thats all they know how to do", they must debase the USD.

What goes without saying is that Obama and his pack of cackling jackals are in toal agreement with the debasing of the USD. That is that is all he knows. I ean Krugman can't be proven incorret can he? What would Obama and the NYT do then?

Force US citizens into stocks, create fear and loathing via MSM for anyone who disagrees. I'd be surprisecd if they have not already conatcted Alcoa, and are readying a nice bullish script right now....

 

Tue, 01/08/2013 - 16:14 | 3133899 Manthong
Manthong's picture

Something must be wrong..

I can’t get any of my coins or bars to sloosh.

Wed, 01/09/2013 - 03:12 | 3135494 nastaking
nastaking's picture

China Brand Tablet PC  at four times the resolution of today's high-def images is turning out to be one of the most popular bets among consumer electronics makers in Las Vegas at this year's CES.

Wed, 01/09/2013 - 03:17 | 3135496 yang46
yang46's picture

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