How Much More Upside Is There?

Tyler Durden's picture

For 5 years the correlation between the expansion of the Federal Reserve's balance sheet and the growth of the S&P 500 has risen dramatically. Since QE3 was unveiled, the correlation is converging on 1 which of course is just happy coincidence and nothing to do with the free and easy flow of liquidity that month after month of Fed largesse has created. The problem is we now know that the hurdles to a Fed un-Taper are very high and so we can extrapolate the end-point for the Fed's balance sheet and where stocks would trade at that point. The S&P 500's recent exuberance has priced in the total expansion of the Fed's balance sheet to the end of the taper, so how much more upside is there?

 

Coincidence...?

 

Perhaps not...

 

And close-up... we have priced in the rest of the Fed's balance sheet expansion to the end of the Taper... The S&P is actually around 20-25 points rich to the current levels of the Fed's balance sheet

 

Dont forget, tapering is not tightening... though it looks a lot like it will be...

As Jeff Gundlach recently opined...

What troubles me the most psychologically in the markets right now is this logic that as long as there is Quantitative Easing, stocks will go up.

 

And if the Federal Reserve drops Quantitative Easing, stocks will go up, too, because it means the economy is strong.

 

It makes me wonder.

But then again, Fed's Williams confirmed last night...

The Fed must blow bubbles because otherwise irrational investors get "carried away" and inevitably crash the markets...

 

Ultimately it seems clearer and clearer that, as Williams himself opines "financial stability is just as important as pursuing price stability and growth."

So prepare for QExxx

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dontgoforit's picture

nOT pREpAreD for this....a fools game.

Mark Carney's picture

Your New Normal:  Spanish 10Yr yield is only 7bpts higher then USA 10 yr.

 

All fixed!

max2205's picture

Mark my words.....it will stop when billionaires become trillionares when millionaires become billionaires and when thousandaires become millionaires

 

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........('(...´...´.... ¯~/'...') 

.........\.................'...../ 

..........''...\.......... _.·´ 

............\..............( 

..............\.............\...

 

 

THX 1178's picture

And when bread costs 250 a loaf.

SamAdams's picture

I suspect Greece and Ukraine are planning to buy $1T in treasury notes in the coming year.  You know, because Belgium is all tapped out...

thamnosma's picture

Pirates run Somalia.  Seems like a good place to set up some operations.

Vampyroteuthis infernalis's picture

I am telling you this now. Team Obummer is going to play the sound bite, "the US economy is strong because of my leadership" to death using the fake stock market and phony employment stats as evidence. Another thing is they will taper slightly to confirm this great lie. The taper is going to damage the fake recovery more than they realize. Debt driven expansions require more and more each round to be effective. Watch out below!!

TBT or not TBT's picture

With NIRP, the correlation can exceed 1. BTFATH!

Four chan's picture

kudos tylers this is an outstanding thread in many outstanding threads.

disabledvet's picture

Or when you pinch a loaf and that costs 250 bucks.

 

At McDonalds.

 

Where is the chart showing the Great Commodity collapse?

 

Where is that non correlated asset phuckers?

zaphod's picture

No, that happened in Germany and they still had several exponential runs to go.

It will stop when people walk away from the dollar and fiat currencies in general. Only that will take power back from the banks/government. Until then this will continue.

I have walked away from the dollar in every manner I can (considering all my expenses and paycheck are nominated in dollars), have you?

icanhasbailout's picture

It depends. Adjusted for real inflation or not?

Headbanger's picture

Or in other words..  We've already reached full retard!

Also "financial stability is just as important as pursuing price stability and growth."  is an oxymoron!

Cause they're simply can't be endless growth as these fucking idiots want to believe.

 

And holy shit Batman!!  VIX IS DOWN TO A NEW 52 WEEK LOW!!

http://www.marketwatch.com/investing/index/VIX/charts?symb=VIX&countryco...

 

AND PROBABLY A DECADE LOW TOO!

http://www.marketwatch.com/investing/index/VIX/charts?symb=VIX&countryco...

 

FULL RETARD REACHED!

Professorlocknload's picture

Question is, will there still be enough liquidity left when VIX skyrockets, to pay out?

Gonna be interesting watching the entire stadium try to exit through a 12 inch porthole at once.

Bryan's picture

The best job on the planet at that point will be scalping tickets through that 12 inch porthole.

EllaDara's picture

06/06/2014 will be remembered in history as Tday. When SP topped at 1949.5 and never returned again. (T as in TOP)

bigfoot_st's picture

why not? 20-14=6, so you have a whacky 666 day!

EllaDara's picture

06/06/2014 will be remembered in history as Tday. When SP topped at 1949.5 and never returned again. (T as in TOP)

machineh's picture

T as in Toast ... for short sellers.

disabledvet's picture

Hope you assholes have a good muni bond guy.  Once that junk bond market gets nuked say hello to the Big Ugly Fat Phucker.

that's a trillion in issuance a year...at one percent interest rates on the thirty year.  "Forever."

aardwolf's picture

CALLING ALL ZEROHEDGE READERS:

DO YOU WANT TO END THE FED? DO YOU WANT TO TAKE BACK THE POWER TO CREATE MONEY FROM PRIVATE BANKERS??

 

SWITZERLAND WILL HAVE A REFERENDUM THIS YEAR TO DO JUST THIS!! THEY WILL START ISSUING SWISS FRANCS DEBT FREE LIKE YOUR OLD GREENBACK!!! THEY WILL REMOVE THE PRIVATE BANKS POWER TO CREATE ELECTRONIC DEPOSITS AS DEBT AND RESTORE IT TO THE SWISS NATIONAL BANK, WHICH WILL DO IT DEBT FREE!!

 

PLEASE DONATE HERE THIS SUMMER: http://www.vollgeld-initiative.ch/english/ THEY NEARLY HAVE ALL THE FUNDING FOR THE 100,000 SIGNATURES REQUIRED.

 

DO YOU REALLY WANT THE MADNESS TO END? PUT YOUR MONEY WHERE YOUR MOUTH IS! I HAVE DONATED 10 CHF MYSELF BUT YOU GUYS ARE RICH. PLEASE HELP THE WORLD TODAY! IF THE SWISS SUCCEED WE'LL BE ONE STEP CLOSER TO ENDING THE FED. ACT NOW!!

PlusTic's picture

It's NEVER going down...

machineh's picture

For stocks, there hasn't been a down year ending in 5 for the past eleven decades. If we can make it through this summer, it's off to the freaking races.

So I'm projecting a Bubble III peak of S&P 2,720 in 2016.

Though it's a long shot, this is not entirely a joke. Central banksters are bat-shit crazy, so prudence will get you nowhere.

PlusTic's picture

there are no "natural" sellers, only shorts...so we will just keep going from squeeze to 3-day selloff to squeez...until there are "natural" sellers again, we can't go down for more than a few days to a few weeks...

EHM's picture

Yes. It's the stupid fucking shorts that make it easy. When the stupid shorts realize they can't win then you might see something.

dontgoforit's picture

We've given up on winning.  We're on the side lines selling popsicles to toothless grandmas.

thamnosma's picture

I like cherry, you got cherry?

dontgoforit's picture

Of course; that's my favorite, too.  $250, please (inflation, you know).

SheepDog-One's picture

They're not crazy at all, they're just rounding up all the sheeple into the pen for the EZ slaughter.

Platinum_Investor's picture

I really think that's a coincidence no down years that end in 5.  

dracos_ghost's picture

Except with QE/NIRP/ABE, there are no down years that end in a number.

LawsofPhysics's picture

Before I answer that question, I'll like to know whether or not the author believes that debt actually has to be re-paid or not?

"Full faith and credit"

tick tock motherfuckers...

 

alien-IQ's picture

Faith; A belief in something for which there is no evidence.

LawsofPhysics's picture

Life is not black and white.  I have "faith" that the lights will come on in the barn when I flip the switch.  Oddly enough, you would be surprised how often that doesn't happen.

dontgoforit's picture

Time for a re-wire?  I suspect we're going to get the shock of all shocks one fine morning.

Spastica Rex's picture

I suspect we're in for a very lengthy re-defintion of what it means to be an "Average American."

Haus-Targaryen's picture

I'm telling you guys -- get out. 

cosmictrainwreck's picture

Of course debt will not (cannot) be re-paid...simply repudiate/re-set currencies, etc. Was at town hall with congress critter waaaay long ago (1980's?). Da " budget" etc. interest as % blah blah. Asked "OK...what about principal? Anybody ever even so much as talk about that?" Reply: "nah"

alien-IQ's picture

who gives a fuck.

disabledvet's picture

"Just pass the gray poupon bitch."  I like it.

"Free airfare to friggin Tel Aviv included."

Tabarnaque's picture

To infinity and beyond...

irongator's picture

So clearly it cannot be QE to infinity... There is obviously going to be some force that stops the QE (if our government cannot have self control). What is that force or threat that stops the madness, and then what happens?

Dr. Engali's picture

How much more upside is there? Just ask Zimbabwe.

machineh's picture

As billionaires, they are too busy counting $100,000 bills to pay for a cup of coffee.

NoDecaf's picture

The only downside is that we won't be able to do the wallpaper thing.

tawdzilla's picture

Can anyone answer me a serious question?  Where would the 10 year rate be right now if no QE had been done?

 

To ask in another way...specifically, how much affect does QE have on rates?  1/2%, 2%, more?  Thanks.

i_call_you_my_base's picture

It's probably much more than anyone would estimate. The idea that the Fed can and will control rates probably has more impact than the control itself.