It's Not The Economy, It's Inflation & The Fed Stupid

Tyler Durden's picture

It will not be a great shock to ZH readers, but the sad truth (no matter what one is told by the plethora of talking heads and commission takers) is that neither EPS upgrades or EPS outlooks are in any way correlated to equity market performance. Instead, the central bank balance sheet size and forward inflation expectations are the key factors. As Credit Suisse notes, in fact over the past few years, EPS upgrades and outlooks are negatively correlated with stocks!

Even as current inflation (CPI) is supposedly fading, forward inflation expectations have risen and supported equity P/E valuations.


and until recently, central bank balance sheets remain supportive of stocks...


However, in the last few weeks, as stocks have surged ahead, a few things have changed with the world's central banks seeing the lowest growth in their balance sheets since the crisis began...


and in the last few weeks, forward inflation expectations have dropped notably - after peaking at post-crisis peaks once again...


So, it's not at all about the fundamentals; it's about the central banks and inflation - and in the short-term, they are losing some willpower - as the ECB is loathed to expand its balance sheet (which is the current drag) and implicitly weaken its currency (as we discussed earlier).

Source: Credit Suisse and Bloomberg

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Mongo's picture

It's rehypothecated horsemeat!

redpill's picture

Vaporized Assburger!

The Juggernaut's picture

Its kind of sad because people like Bernanke and MillionDollarBonus_ actually believe that central planning works.

Manthong's picture

Ah, for the good old days.. when the Fed used interest rates and 100x’s  less counterfeiting to control things

Say What Again's picture

Another surge of buying into the close.

Who is buying the market at these levels?

eclectic syncretist's picture

Volume plunged today.  This market is getting to be all Fed, all the time.  Low volume in an overbought market = imminent downturn if you're a betting man, at least by historical standards.  In this market there aren't any standards one can rely on though.

Say What Again's picture

I agree with your analysis.


Friday's volume (at least on ES) was considerably low, and today's volume is even lower. 

Also, I track the ratio of UP Volume to TOTAL Volume for a number of markets, and that ratio is below 50% today.  The ratios were in the 60% to 70% on Friday, but for many of these "rally" days, the ratio has been below 50%.

But as they say, the market (i.e., the Fed) can remain irrational much longer than you can remain solvent.

Mark123's picture

I agree...but I sort of thought the same thing for the last 3 years and still the central banks and their spawn keep running this ponzi market higher.  Seems as though they have become the market so unless there is a big move to withdraw cash from the ponzi, this could go on forever.


The really sad thing is that when it does crash it will be the bankers that are pulling the plug and they will be positioned to make fortunes off of it.

falak pema's picture

it has a great EROEI ratio to private banksta printing money out of nothing; they started this debt debasement game under RR.

Cause n effect; fight banksta fire with CB fire; its ONLY electronic money and the whole issue is to let it ALL be flushed out as ONE big nothing in one fell sweep to allow the reset to occur...

Governments now have to fight the private banksta Hubris of "our wealth" by printing so much that "your wealth assholes" becomes meaningless. Then we can flush out the whole asset/liabilities of this electronic sleight of hand, INCLUDING ALL THE MONEY PILED UP IN SHADOW BANKING AND CAYMANISTA LAND AND HF OLIGARCHS WANKS...


then reset. Print and resuscitate true deposit banking w/o Lady Blythe and JAmie Dimon; and the squid.


No other way out according to him...those derivatives piles are so huge in private OTC shenanigans.

financial apocalyptic contagion's picture

MillionDollarBonus is Bernanke in disguise

Say What Again's picture

I can't decide who is being insulted by that comment.  Maybe, like the value of the dollar, EUR, etc, they both are losing value.

Everybodys All American's picture

and so does this a hole president.

insanelysane's picture

Horsemeat is the new tungsten.

cynicalskeptic's picture

At least you can still eat the horsemeat.......

Nid's picture

Funny how Inflation Expectations go up every day at 3:00.

Dr. Engali's picture

Thank goodness the president is around to protect me from the phony psyop web terrorist organization that call themselves Anonymous via executive order:

Dewey Cheatum Howe's picture

I'm also glad to see how they treat the "heroes" who take out high value targets in the name of national security. The same national security that is more important than our constitution.

The Navy SEAL who killed Osama bin Laden lost his healthcare benefits after he left the military, according to a profile in Esquire magazine.

The SEAL — identified in the article only as "the Shooter" — says he got very little assistance from the government as he left active duty and transitioned to private life.

"I left SEALs on Friday," the shooter said. "My health care for me and my family stopped at midnight Friday night. I asked if there was some transition from my Tricare to Blue Cross Blue Shield. They said no. You're out of the service, your coverage is over. Thanks for your sixteen years. Go f**k yourself."


9/11 ended with Osama being killed enough of this shit.

geewhiz190's picture

may be why gold has been stuck

TrustWho's picture

Taxes going up, SS taxes going up, government spending cuts (some form of sequester) and 4th qtr negative GDP estimate, my guess, economist could announce 10% GDP drop in 2013 and stock prices would continue higher, because Daddy Bernanke has suppressed returns on all other options. This is just INSANE!

Greenspan created a mess with low rates after 9/11 without QE. Can we imagine the mess Bernanke is creating? In 1947, the USA produced 78% of World GDP, so money printing after WWII will have completely different impact post 2008.

Jason T's picture

demand collapse will be deflationary.. but shitty productivity gains..losses? will prove inflationary.  both will be painful

WTF_247's picture

Why not solve the SS problem.

Invest 100% of the I.O.U into the market, ramp up inflation massive, hit a 40% return for the year, pull the funds then collapse inflation with 10% rates overnight.

Seems pretty straightforward to me.

r3phl0x's picture

If they raise rates - the Fed will just have to print even faster to avoid a UST default, which will further increase money supply and USD commodity price inflation. Central Planning FTW.

100pcDredge's picture

It's more of the same +l Health Care.

Whiteshadowmovement's picture

god i love algos sometimes, did everyone pick up a little RGR at $52 to flip?

orangedrinkandchips's picture

Obama state of the union:


"IT DONT MATTER JUST DONT BITE IT......(just suck my dick bitch cuz im a NWA)"

rlouis's picture

Are they evil or idiots - or evil idiots?


At a celebration in Boston for Paul Samuelson in 2004 or so, I had to listen to Ben Bernanke and Oliver Blanchard, now chief economist at the IMF, crowing that they had conquered the business cycle of old by introducing predictability in monetary policy making, which made it possible for the public to stop generating baseless swings in their expectations and adopt rational expectations. My work on how wage expectations could depress employment and how asset price expectations could cause an asset boom and bust had been disqualified and had to be cleansed for use in the rational expectations models.

(The quote is from weell into the interview.)



yogibear's picture

Bernanke and the Fed just created bond and equity bubbles destined to blow.

When they blow it will be epic.

The Fed being at 0 has no tools other than devaluing the US dollar and buying the stock market with ever-devaluing dollars. 

Welcome to Bernanke, Dudley, Evans and Yellen's:


US Federal Reserve Bank of Zimbabwe.


Mark123's picture

This whole charade of modern finance/economics is like watching a Monty Python skit.  Only difference is that I am not laughing.

q99x2's picture

No one can stop Bernanke from printing. He's like a pedophile. The only thing you can do with those types is lock em up in prison.

Everybodys All American's picture

I said this a long time ago that Bernanke will end up in prison for treason and nothing since I said this years ago changes my mind.

Kingkongballs827's picture

PVC Gun Burial Tube. Holds 3 long rifles Ak47, SKS, AR15 plus ammo and gold & silver. Check it out here.



Dre4dwolf's picture

Honestly I just dump whatever loose change I have into the market because I know inflation is going to double it no matter what stock I pick.

The rest is in gold/silver.


The economy is broken, they are just gona slush new fiat credits around and stuff every leak they can find till the entire ball of yarm comes un-done.... no point in even playing their game anymore.

f16hoser's picture

Hey; who you calling stupid? Bernanke? Geithner? Obama? Biden? Pelosi? Boxer? Feinstein? Reid? Bohner? Guomo? Bloomberg? V. Jarrett?