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Bank Of America: "Today’s Stock Market Has Lost Some Of Its Ability To Reflect Underlying Economic Trends"

Tyler Durden's picture


With Greenspan emerging from his crypt to confirm that he is now as clueless about everything as he was 15 years ago (although the absolutely zero reaction out of "stocks" to his statement that stocks are "very undervalued" is perhaps indicative that SkyNet may just be learning), it is appropriate to remind readers that this thing known as the "market" died some four years ago. What we have now is a vehicle with a "role in the policy fight to support spending" while "today’s stock market has arguably lost some of its ability to reflect underlying economic trends." Not our words - those of Bank of America's Ethan Harris, who, four years after the fringe blogs, finally "gets it."

From Bank of America's "A Market With A Mission"

Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing, equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending.




The ongoing climb in stocks does not look like a traditional reflation trade. US long rates remain well-behaved in face of brightening data. Equity prices thus seem to be benefiting from a diet of steadfast monetary support from G-4 central banks as well as expectations that global growth and inflation will remain tepid enough to avoid early policy exits.


A contribution exercise indeed suggests that earnings growth expectations have yet to become a key driver of US and European stock prices. Rather, improved confidence and diminished risk perceptions explain, to a significant extent, the equity price pickup in recent months. This is particular true for the euro area, where firms are still feeling the brunt of a long-lived recession.


Risk assets breathed a sigh of relief back in September, when both the Fed and the ECB reaffirmed their commitments to fight downside risks. Six months on,  and risk perceptions still seem to be receding. As Chart 2 shows, equity risk premia (ERP) have been edging down in recent months. Altogether, the ERP has shed 1pp in the US since June. In the euro area, however, the ERP has dipped by 2pp during the same time period.




The key contributors to US and European markets are likely to be major drivers of stock prices elsewhere. Equity returns are usually found to be even more highly correlated than bond returns. Moreover, to the extent that the predominant role of lower risk premia in driving equities has been induced by G-4 policy easing, global stocks may be acting as a transmission channel.


Fed Vice-Chair Janet Yellen recently noted that, even if the interest rate channel is less powerful in these QE days, the central bank is counting on wealth channels to support consumption spending. In other words, today’s stock market has arguably lost some of its ability to reflect underlying economic trends in exchange for an important role in the policy fight. That said, we see more no change to this trade-off on the horizon: the Fed will likely keep purchasing assets into next year.

So there it is: the "market" is now anything but. The only question is whose "consumption spending" is being supported.

Can we please stop pretending as if there is any causal relationship between news from the real world, and what the Fed's wealth transmissions mechanism does. In fact, can the Fed just give everyone its closing price target for 4pm today, a month from today, and for 2013 just so everyone can fast forward to that point, and "discount" their newly diluted wealth?

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Fri, 03/15/2013 - 08:03 | 3331911 HelluvaEngineer
HelluvaEngineer's picture

Judging by the number of comments around here, it looks like we are ready to set another record low volume day.

Fri, 03/15/2013 - 08:17 | 3331939 Pladizow
Pladizow's picture

"Today’s Stock Market Has Lost Some Of Its Ability To Reflect Underlying Economic Trends"

Um, Ya Think?!?

Fri, 03/15/2013 - 08:23 | 3331947 GetZeeGold
GetZeeGold's picture



Going for DOW up 11 daze in a row......nothing but sunshine in the forecast.


Living on a prayer and low volume.....never let them see you sweat.

Fri, 03/15/2013 - 08:23 | 3331954 rsnoble
rsnoble's picture

No overhead resistance.  No more funny futures games to jump over the river in the am.

I hate to say it but unless an event or reality sinks in this could go on for awhile.  Of course I don't know if it will i'm just saying.

Fri, 03/15/2013 - 08:54 | 3332009 rsnoble
rsnoble's picture

Don't really need to watch that but thanks for trying to help.  Let me clarify:  I believe total destruction is coming.  I am merely talking short term in the previous comments.

Fri, 03/15/2013 - 09:59 | 3332158 Badabing
Badabing's picture

After doing a thorough analysis using OHLC charts overlaying Elliott wave principle, Fibonacci ratios, momentum rate, the 200 and 50 DMA, crossover and resistance break out trending I have come to the conclusion that the in-depth analyses just preformed is for SHIT because the market is counterfeit!

Fri, 03/15/2013 - 09:17 | 3332050 EscapeKey
EscapeKey's picture

no, of course there's no overhead resistance. by repeatedly spiking the bowl, bernanke has essentially declared war on short positions. who the hell dares go short (unless properly hedged) when you have a moron who thinks every problem can be solved by easing liquidity in charge of this nonsense...

regardless, mervyn king just trotted out that same old song "the recovery is in sight" - i mean, FFS, HOW many times have we heard that same old crappy line over the past - FIVE years?

meanwhile, his cronies carry on looting the treasuries around the world.

Fri, 03/15/2013 - 09:28 | 3332077 centerline
centerline's picture

The whole world is going to shit.  Seriously.  It is all too interwoven and dependant.  All riding on the backs of fossil fuels and ponzi growth.  There is no way out without pain and the writing is on the wall in big, glow-in-the-dark letters that the nasty combination of finance, politics, and numerous governments, industrialists, religions, etc. all pulling the rope in different directions pretty much sums to a looming disaster of biblical freakin proportions.

But, the US is still the prettiest turd in the toilet bowl.  Reserve currency + massively deep markets.  Unparalleled military strength.  Etc.  Including the ability to directly monetize debt.

There is a decent chance that someone else goes down first.  PIIGS taking down the EU.  Then Japan finally rolls over.  The land down under finally wakes up to an American style housing nightmare... etc.

Anyhow, cash will flee those countries.  It could wind up here seeking refuge, not necessarily return.  Everything US including hard assets, contracts for work, and so forth.

I fully expect it to look like the "recovery we have been waiting for."  The markets will probably explode to the upside.  So will the US$.  But, oddly enough, Gold will hang tight (not tank or "go to the moon") because nothing is really fixed.

For most people, it won't matter because unemployment is still high.  Acts like a hyperinflation buffer.  Hence, companies will hire.  But wages will still be compressed.  Taxes will still go up.  And commodities will continue to rise.  Nothing new, just more activity.

This will be our blow off top.



Fri, 03/15/2013 - 08:47 | 3331990 CDSMonkey
CDSMonkey's picture

they lost me at "some"

Fri, 03/15/2013 - 10:20 | 3332255 Stoploss
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Fri, 03/15/2013 - 08:42 | 3331984 SheepDog-One
SheepDog-One's picture

No, Cancer on America bank....the 'markets' have been turned into a JOKE because of you and the other Maniacal Monetizer ass hats! 

Stop whining! You got what you demanded...YOU made your bed full of burdocks and bedbugs, now YOU have to lie in it!

Fri, 03/15/2013 - 09:15 | 3332052 TideFighter
TideFighter's picture


Fri, 03/15/2013 - 11:29 | 3332528 rotagen
rotagen's picture

Change the title to "Restating the bloody obvious"

Fri, 03/15/2013 - 08:04 | 3331913 rsnoble
rsnoble's picture

Over the past several years of reading literally 1000's of articles and their headlines and viewing firsthand the outcome I have developed a near HFT speed response sense when it comes to the reality of the situation, sometimes by merely reading the headline.

In this case "Some" = "ALL".

Fri, 03/15/2013 - 08:04 | 3331914 Jason T
Jason T's picture

Well, a Correction is in need of occuring.  It'll correct this nonsence one day and there is no power great enough to stop it.

Fri, 03/15/2013 - 08:06 | 3331915 Silverhog
Silverhog's picture

Greenspan is Father of the problems we now face. His idiot son Ben continues the folly. We certainly have been blessed. 

Fri, 03/15/2013 - 08:06 | 3331917 DblAjent
DblAjent's picture

Could it be that BoA is coming clean? Or do these information terrorists redeem themselves by throwing us a bone once and a while?

Fri, 03/15/2013 - 08:10 | 3331927 NotApplicable
NotApplicable's picture

Or perhaps reality can't help it but to wind up in the facade every now and then?

Fri, 03/15/2013 - 08:24 | 3331955 Global Hunter
Global Hunter's picture

No they don't come clean, I suspect there is one or two individuals on each floor of an office tower who haven't been able to surpress all common sense, have some integrity, smoke a lot of herbs or read ZH when they're at home (or a combination of).

Fri, 03/15/2013 - 08:26 | 3331959 GetZeeGold
GetZeeGold's picture



A cry for help perhaps?

Fri, 03/15/2013 - 08:41 | 3331982 Global Hunter
Global Hunter's picture

a cry for help OR the guy doesn't know any better (the pin hasn't dropped yet, if it ever will).

P.S. for the first time last night I began to wonder if the Paul Krugman that posts here at ZH was the real guy from things he wrote, now I don't if that is a cry for help but psychiatrists would have a field day with that one if it really is.

Fri, 03/15/2013 - 08:06 | 3331918 RSBriggs
RSBriggs's picture

Does anybody really know what time it is?
Does anybody really care?
If so I can't imagine why
We've all got time enough to cry...

Fri, 03/15/2013 - 08:30 | 3331966 XitSam
XitSam's picture

Hey, everybody / Won't you just look around / Can't anybody see? / Just what's going down / Can't you take the time? / Just to feel / Just to feel what is real / If you do / Then you'll see that we got a raw deal / They're killing everybody / I wish it weren't true / They say we gotto make war / Or the economy will fall / But if we don't stop / We won't be around no more / They're ruining this world / For you and me / The big heads of state / Won't let us be free / They made the rules once / But it didn't work out / Now we must try again / 

Fri, 03/15/2013 - 08:09 | 3331922 azzhatter
azzhatter's picture

you mean Greenspan is not dead already? I thought that was a mummy

Fri, 03/15/2013 - 08:13 | 3331933 Lets_Eat_Ben
Lets_Eat_Ben's picture

Muppets have long life expectancies.

Fri, 03/15/2013 - 08:09 | 3331923 Charles Nelson ...
Charles Nelson Reilly's picture

Me thinks Ethan will be reassigned by the wonderful folks at the friendly neighborhood bank, BOA, no later than Monday morning.

Fri, 03/15/2013 - 08:11 | 3331926 DblAjent
DblAjent's picture

...or be diagnosed with the Chavez-strain of Cancer

Fri, 03/15/2013 - 08:35 | 3331974 Greshams Law
Greshams Law's picture

After being infected with that dickhole Chavez, hasn't Cancer been through enough?

Fri, 03/15/2013 - 09:41 | 3331986 DblAjent
DblAjent's picture




Jesus, he took forever to go down, didn't he?

Fri, 03/15/2013 - 08:09 | 3331924 venturen
venturen's picture

I am all in. They can pump this market till my dollar is worth a penny!

Fri, 03/15/2013 - 08:24 | 3331925 francis_sawyer
francis_sawyer's picture

Fed counterfeiting money for its shareholders who launder the money in their own rigged casino & use the proceeds to throw lavish bar mitzvahs for young Solomon & his friends... It's all about keeping up with the Schwartzes...

Fri, 03/15/2013 - 08:40 | 3331979 disabledvet
disabledvet's picture

that's Pope Francis to you...

Fri, 03/15/2013 - 08:42 | 3331985 francis_sawyer
francis_sawyer's picture

Pope Francis is in da house...

Fri, 03/15/2013 - 08:11 | 3331929 Lets_Eat_Ben
Lets_Eat_Ben's picture

We need new exchanges. A major broker in every state.

Fri, 03/15/2013 - 08:12 | 3331931 Nid
Nid's picture

Any chance of a Flash Crash today? I'd like to avoid another worthless Put expiration party.

Fri, 03/15/2013 - 08:16 | 3331938 Lets_Eat_Ben
Lets_Eat_Ben's picture

Short that shit! SLV to shit itself in 1 hour.

Fri, 03/15/2013 - 08:17 | 3331940 DblAjent
DblAjent's picture

I'm gonna buy mine back for a nickel and convince myself it was a prudent move.

Fri, 03/15/2013 - 08:15 | 3331934 buzzsaw99
buzzsaw99's picture

Ben pumped up the bond market

He pumped up the stock market

50M on food stamps

We just want to pump you up!:


Fri, 03/15/2013 - 08:16 | 3331937 sbenard
sbenard's picture

Lack of "risk perception" is key because it is a core driver of bubble behavior. This is explained in Reinhart and Rogoff's book, This Time Is Different, the points being that it isn't (different).

Fri, 03/15/2013 - 08:17 | 3331942 forrestdweller
forrestdweller's picture

first they fuck everybody, and then they say it wasn't meant that way, and they wanne be your friend.

Fri, 03/15/2013 - 08:22 | 3331950 All_Is_Well
All_Is_Well's picture

Yes,  the sheeple like to be kissed after they get fucked...

Fri, 03/15/2013 - 08:47 | 3331993 SheepDog-One
SheepDog-One's picture

No hard feelings right? Wanna buy sum stawks?

Fri, 03/15/2013 - 08:19 | 3331943 Yen Cross
Yen Cross's picture

  All the fake POMO money that has been pumped into these fake markets,is going to be vaporized,and once again the taxpayer will be on the hook for the losses.

   Ohh ya, fuck you BoA.

Fri, 03/15/2013 - 09:01 | 3332019 scatterbrains
scatterbrains's picture

yes the majority recipients of this free money know that it's all bullshit and find ways to quickly park all this free cash out of harms way.  Benny B is probably only getting 2 cents on the dollar of market lift and his merry band of banksta niggas are pocketing .98 cents worth of tax payer funding. When it all caves it will be very important to hunt these scum bags down the way we went after Bin laden even if we have to break sovereign country laws and extract these niggas via helicopter raids at night etc.

Fri, 03/15/2013 - 08:19 | 3331944 Sudden Debt
Sudden Debt's picture

If you ever took viagra just for the fun of it, you know that suddenly, you feel like a stalion!

and the misses also starts thinking that a 2 hour boner is perfectly normal.

and when you stop taking them when the box is empty... and you start returning to your normal routine, the misses ask : "what's the matter?"

and before you know it, you keep a bottle on the side "just in case" even when you don't need it.

So today's economy is just like that. We can't leave the money printing. Never. we'll always keep it asside and whenever we feel like it we'll print and normal isn't normal but that's normal.

Fri, 03/15/2013 - 08:48 | 3331995 Svendblaaskaeg
Svendblaaskaeg's picture

"If you ever took viagra just for..."

brilliant analogy, thanks!

Fri, 03/15/2013 - 08:54 | 3332008 madcows
madcows's picture

What I don't get is the warnings against 4+ hour erections.  Bring it on.  Honey, you're going to be sitting funny tomorrow, cuz we're playing dress up, and tonight Daddy's the "ERECTORATOR"

Fri, 03/15/2013 - 09:22 | 3332069 Boondocker
Boondocker's picture

and tonight honey, you might want to bring a friend.... 

Fri, 03/15/2013 - 10:02 | 3332168 WarPony
WarPony's picture

When finished, I take the 4-hour thing to the mall - so proud~!

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