The Consolidated "Currency Wars" Chart

Tyler Durden's picture

While we have pointed out various divergences among risk assets, the deterioration in macro fundamentals, the dismal earnings picture, and the potential for various geopolitical hotspots to ignite, there appears to be only one chart that the US equity market is willing to pay any attention to, for now - that of global central bank balance sheet size. The ongoing competitive devaluations of developed market currencies is a by-product of policymakers’ attempts to (repress) lower real bond yields and, as Credit Suisse notes, has an important (and potentially vicious) element of contagion to it (as Europe is finding out currently): currency appreciation continues until the deflationary pressures associated with an overly strong currency become too large and the country is forced to join in the trend of central bank balance sheet expansion. For now, it appears stocks are 'allowed' to rise, gold is suppressed, and balance sheets are expanding, but as we saw in Q4 2012, there comes a time when reality interjects (albeit briefly).


Thanks to the Fed and the BoJ most recently, the USD-rebased balance of the world's largest central banks (Fed+BoE+ECB+PBoC+BoJ) has begun to expand - and sure enough Bernanke's policy tool - the Russell 2000 - has recoupled...


but gold, in whatever way you believe (via leases or direct manipulation) appears to be held back (for now)...


and Europe is now under pressure once again as its currency rises strongly, impacting its competitiveness (as we warned here and here) - and with its 'easing' off-balance-sheet, will it be forced to bring it back on balance-sheet?




As to when this 'repression' ends... Credit Suisse notes,

We do not see an end to this process until real bond yields fall to a level that stabilizes government debt to GDP and the unemployment rate in developed world. On our calculations, this implies a real bond yields of around minus 1½% to 2%, compared with the current US 10-year TIPS yield of around minus 0.6%

But, markets do not go up forever, just as occurred in Q4 2012, there are times when not even the man behind the curtain can maintain investor interest amid political uncertainty (Europe in 2013), valuations (earnings drop in 2013 pushing P/Es notably higher), macro deterioration (US starting the year in the red), and unilateral currency wars...

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Joe moneybags's picture

I understood WilliamBanzai7's Currency Wars article better.

zorba THE GREEK's picture

When the going gets tough, the tough buy gold and ammo.


Hi Ho Silver's picture

Pretty soon you'll need gold to buy ammo.

GetZeeGold's picture



Gold is easier to find than ammo these days. Of course everyone knows you should get ammo first.

francis_sawyer's picture

Bitcoins ae going to Pluto!... It'll be a PhotoFinish with the Iraqi Dinar...

Half_A_Billion_Hollow_Points's picture



Oh yes they are; we've reached the all-time high bitcoin "market cap" today, and we're only getting started, and we're being laughed out all the way.  


If 1000 people decide to buy ALL the bitcoin generated this year; ALL OF IT, they will only get 1314 bitcoin.  This is what scarcity means. 

GetZeeGold's picture



How many tulip bulbs can you get for a bitcoin?

earleflorida's picture

everybody is accumulating physical gold on the quiet... waiting patiently for the inevitable to happen-- which is perhaps a done deal by 2015! Then we will see physical gold, at minimum... $5k/oz


Half_A_Billion_Hollow_Points's picture

... if you can find any ounce for sale, that is.

Cognitive Dissonance's picture

Rube Goldberg would be proud of what the central bankers have created.

<Now, what would happen if I pulled on this strin..........>

francis_sawyer's picture

Noteworthy that all the recent talk about bitcoins got you thinkin' about Rube Goldberg...

Charley's picture

And also a negative GDP print and the start of QE-Infinity.

random shots's picture

Clone Wars were better. 

disabledvet's picture

i really think the next time Chairman Bernanke gives a speech he should have a placard behind him that reads "he who debases first debases best bitch." any questions? "you in the back...yes? yeah...why the phuck are you even alive right now?" and i'm trying to think of the answer our Sphinxer would give...probably something like "well...let us imagine death for a moment shall we? and then imagine...well, say...LIVING. and upon pondering these two reality we should then..." and then the whole room clears out and the only thing left are loose leaf papers floating about the voice of someone on the radio exclaiming "Kim Kardashian just had her baby and it's a!"

chump666's picture

Yen is getting hammered...bad.  DXY for months was holding it's ground ( valiant effort by South American/Argentina USD black markets and China USD black markets), now looking like it's going through 79, then free-fall to 78 and from there, maybe it's 2009, 2010 lows.

The Fed/ECB and BoJ have declared war on humanity. 

Black Markets's picture

there are times when not even the man behind the curtain can maintain investor interest amid political uncertainty

You mean Geitner?