A Market "Based" On Monetary Surreality

Tyler Durden's picture

With macro data becoming worse and worse (more and more bullish for Fed free money) and stocks off to the races (despite earnings that are abysmal), we thought a litle reminder of just what is driving this un-reality in nominal price moves. As the following chart, inspired by UBS, shows, each time the S&P 500 shows any sign of weakness, US money grows dramatically (money defined as the sum of M2 and foreign custody repo-able holdings at the Fed). Simply put, this is the reaction function of the Bernanke Put and explains why any weakness in Europe causes problems for the US - as the foreign banks repatriate and impact this 'growth' support. Correlation is not causation, but it is a strong hint.


The growth in money (M2 plus the NY Fed's foreign offocal institution's custody holdings of Treasury and Agency debt - i.e. repoable 'stuff') surges (red green arrows on inverted axis) each time the S&P 500 shows any sign of stalling (red arrows)...


Which is the exact opposite of the relationship pre-Lehman...


Which is why this doesn't matter... (and yes Macro dropped today as the terrible ISM Services and Factory Orders misses trumped the NFP beat)


Until it does...


But then again we know exactly what will happen should the 'market' overwhelm the money briefly... or more permanently... (and FYI - the break point in mid 2006 between macro reality and the markets coincided with Magnetar selling CDOs guaranteed to fail, Merrill's CDO department's dificulties in getting super senior CDO tranches off their books, and AIG and the monolines begin to stop selling CDO protection)


Charts: Bloomberg

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El Viejo's picture

Watch tonights Charlie Rose. (China and Steve Cohen) On PBS now but it says original air date: May 2

 2013 (rerun) This jet lag is killing me.

HelluvaEngineer's picture

Let me be clear about this.  I will never fucking ever watch Charlie Rose.  But thanks for the tip.

El Viejo's picture

For those with a little more open mind this was not an opinion piece. It was informational about two current investigations.

Maybe this is more to your liking: http://en.wikipedia.org/wiki/Lyndon_LaRouche


rlouis's picture

Charlie is a member of the CFR...which might impact his objectivity or credibility, depending on your point of view.

flacon's picture

I'm sure Charlie Rose means well.. in a pH Dee academic sort-of way. They are here to 'help us out of this problem'. I'm sure the academics have it all figured out... I mean... do YOU have a pH Dee in economics from an accredited Ivy Leage University?  ... /sarc

Lets Buy The Dip's picture

every heard the saying Charlie rose.....blows!!!


NO!? that is because I just made it up. 


He is a punce, phuck him and the horse he road on!, i mean seriously. 

ekm's picture

I've said, I am saying it and I will say it again:


There is only and only one factor that defines everything right now: CRUDE OIL PRICE.


The rest of theory.

El Viejo's picture

What, the price is not manipulated by producers and speculators? Thanx for the tip.

ekm's picture

They are allowed to. The Gov allows margin trading of commodities.


In 2007/2008 Bush disallowed margin trading of crude oil because economy suffered sudden death. Obama came to power and it started again.

otto skorzeny's picture

repeat after me - O is a puppet- nothing more or nothing less- like W before him.

Urban Redneck's picture

Puppets don't exercise free will.

Human beings do exercise free will.

They are both liable for the actions they have overseen and allowed to pass.

El Viejo's picture

I know, but for me oil price can be just as bogus as the S&P (on a smaller time frame perhaps) And I freely admit that the price being too high, just like interest rates, will bring down the house of cards. And then of course there is political decisions.

surfersd's picture

What does that mean? Crude (WTI) has moved up and between $85-100 for the past year.What does the crude price have to do? How does it define everything. The major play in oil is that we are finally seeing the unwinding of the Brent  - WTI arbitrage. A historical spread that would trade from wti $6 over to Brent $6 under. The massive increase in Mid continent crudes, no pipelines flowing south(to the GC where all the refineries are), mid east troubles and decent world demand drove those spreads out to $25 Brent over. It took awhile, but the market has finally worked out the problem. A huge amont of take away capacity out of Cushing (keystone south, longhorn seaway), the start-up of big mid-con refiners, weak world growth and mideast issues on the back burner, have the current arb at $7.80 and coming in. By year end or early next we could see Wti back over Brent and the WTI market in serious backwardation.


So please be more specific how CRUDE OIL PRICE defines everything so we can put a trade on.

BTW your comment about margins is stupid. NYMEX has always allowed the trading of WTI on margin. Ridiculous comment. 

ekm's picture

With all due respect sir, I've come to understand that most of people who have worked only in finance during all their lives, are not willing  to understand the real economy and I've given up trying to explain it to them.

surfersd's picture

All due respect my ass. Dick! I am 57 and was physical oil trader for 25 yrs w/ a master in economics and a degree in chemical engineering. I have been reading the website for a long time and you join a long list of dickwads who have no clue how the oil market works. Please I have no need for you to explain anything to me. 

Go away.

Before you do tell the great insight about the real economy you have and the trade that you put on to capitalize on it. As my buddies would say knowledge talks bullshit walks, have a nice stroll.



ekm's picture

I'll accept chemical engineering, good for you.

Masters of economics, just use it as toilet paper.


You do not know how oil market works. You simply know how they should NOT be working and making money out of it.


What you said simply shows how you have no clue how physical market SHOULD be working with the goal of benefitting everybody.

Very shortly putting it, same as in a casino, speculators are great if they speculate at 100% margin. Nobody allows you to go to a casino and buy $100 of chips but bet $10000.


I want people to make money, I want people to produce and offer something usable, and I even have no problem people making extortion money like mafia but admitting it it's extortion money.


You sir, you simply extort, and are not aware that you are extorting.



surfersd's picture

You are a fool. Physical Oil has to move and the most efficient way to do that is by trade. You are the one who has no clue and lumps all forms of commerce and capital market functions into a warped sense of conspiratorial fiction.

I have worked on an oil platform, a refinery and on Wall Street and the last group provides the lowest value in the economic chain, so no lecturing. Move back to your socialist paradise where they have figured how to make sure the physical oil markets benefit (one t) everybody.

As I said before dickwad and clueless.


ekm's picture

I thank you from the bottom of my heart.

Your answer is quite crystal clear to me. You just proved anything I said. I've lost track of the people telling me that financial extortion is the most efficient way of trade.


Thx again.

ekm's picture



Out of all you said, you're correct about spelling of "benefit-ting', it's one t.

I apologize.

ekm's picture

To sum it up sir:


To claim that one knows how oil market works, is equal to claiming one knows how extortion works.


You know, I know. You are making money out of extortion, I am not.


It is this simple.

ekm's picture

I can't find anything online to prove what I said about crude oil margin trading. I will.


I do remember very well that during that Lehman period CFTC enforced something by White House order, either stop of margin trading or quite high position limits, but something drastic they did which affected trading drastically.



El Viejo's picture

A+ for effort! Thanks.

Panafrican Funktron Robot's picture


Bush stopping SPR purchases.  SPR reserves are pretty much the "spice" for the JP Morgues of the world.  


Panafrican Funktron Robot's picture


Good general article on the market manip.  To the above posters wondering why this particular manipulation is important, it's because this more directly drives geopolitics (one could argue gold is wrapped up in this as well).  People go to war over oil.  It's a good thing drinking water isn't (yet) on any market.

Oh, wait.



ekm's picture

Guaranteed world revolutions, if that happens

ekm's picture

Thank you.

I remember listening to Tom Keen radio interviews in 2008. Two or three people said something about the gov imposing some kind of high hurdles to trade oil on margin, but do not remember exactly what.

fonzannoon's picture

U still feeling we are weeks away from something ekm?

Professorlocknload's picture

Politicians always use terms such as "Speculator" and "Manipulation" when markets move against their whims. When they themselves are the creators of the misalignment.

By "politicians" I include with the usual suspects, central bankers.

We've heard it all before. From the pols point of view, it's never the excessive credit creation and faulty political economic policies that cause the problem. It's always the symptom that is blamed.

I personally believe the one single factor to watch for here is, when will the trillions of newly created Fiat finally hit the decks a runnin', causing a spending spree that will finally bring the Crackup Boom into play.

Will it be a jump from $85B a month to $150B? Hell, if that will fix it, why not a cool $Trillion a month?

Next big bailout? At the rate folks are dropping out of the workforce, and boomers are retiring, how 'bout the PBGC?

Then you'll know it's over.







Cursive's picture

It'll happen, but you could die of the anticipation.

Debtonation's picture

Heh, beat me to it by 1 post

Debtonation's picture

The anticipation is killing me, it is too hard to have patience

mayhem_korner's picture



When it arrives - in all its misery - it won't seem as if it took so long...

Yen Cross's picture

  Monopoly Money ™ saves the day.

Tsar Pointless's picture

This time=different.

Rathmullan's picture

The "this time is different" could just be getting going. I watched in horror and disbelief in 2000 as the NASDAQ hit 5049. Kafka would have been proud as man on the street "tech investors" told professional investment analysts that mathematical models of stock price valuations were simply no longer relevant.

While even the bernank probably suspects that his pedal to the metal monetary expansion policy poses significant systemic risks, after 5 years of massively easy monetary policy and deficit borrowing where the media are beginning to declare paul krugman to have been right, why should any of it stop? Especially when some people (and those best positioned to influence policy decisions) are getting rich from it? We could well be in a place where only consequence and not prudence becomes the reason to stop.


ebworthen's picture



Four year equity erection!

DormRoom's picture

lmao.  Today's payroll numbers barely keep up with population growth, and the markets soar. 

Like the housing bubble when each and every day we hear news of 'all time highs'.


otto skorzeny's picture

we're overdue for a massive .5% correction

Youri Carma's picture

Graph of the Day, I would call this U.S. Macro vs S&P 500 graph because it makes the disconnect so obvious. A hologram ready to disappear.


buzzsaw99's picture

Where can I get me some of those CDO thingies? That sounds like some good chit man.

Yen Cross's picture

  Buzz, yer the   BoMB.

AldoHux_IV's picture

Faux growth via markets, broken monetary mechanisms, and flawed metric fetishes is the only story coming out of the Marriner Eccles building

Ham-bone's picture

Only reason S&P 500 went down each time was in conjunction w/ the end of QE and Twist...that is why Ben had to go with QE forever and everererer.  That way he not only shut the exit doors but welded them close.  Buckle up cause Ben is saying $85 billion a month was just the opening salvo...he's got plenty more where that came from.

Prepare the Dow 20k, 25k, 50k hats...and so on.   Only real question is if we'll get the real world inflationary negative impact or if the Fed truly is master of the universe able to avoid leakage of hot money from desired equities/RE/CRE/Bonds and into oil, food, insurance, college, wages, blah blah blah.

In fact, simply amazing Fed has been able to run desired assets while cratering or flat lining non-desirable assets...each previous peak in '10, '11, '12 had some undesirable side effect (PM's, bond yields up, oil blowing up, etc.)...but this time there is no need for a short term cool down as only desired assets go up.  Neat trick.

Supernova Born's picture

Real world inflationary negative impact into college costs?

How many stories on ZH already on the student loan bomb?


Arab Spring, all time record number of food stamp recipients and my favorite of all? Chinese rat lamb? Nice!

The Fed is 100% no master of the universe. WWII, the Holocaust, the Great Depression, 2008 to now...all happened on their watch.

The Fed is only going for an all time record f-up this time around.

I only hope their own demise is bright bit of the nightmare to come.

ghostfaceinvestah's picture

This is gonna end really badly.

FieldingMellish's picture

No Friday humor? or was the NFP report enough humor for today?