Deutsche Bank "Raises The Warning Flag": What The Most Important Chart For The Market Reveals

Tyler Durden's picture

Back in 2010 we were the first to show that the only thing that matters for centrally-planned, Fed (and HFT)-manipulated markets is the size of the Fed's balance sheet and the only financial statement of any macro relevance is the Fed's weekly H.4.1 release. Initially mocked (but... but... the fundamentals), the subsequent proliferation of charts showing the correlation between the Fed's balance sheet and the S&P 500, has confirmed that virtually everyone - even the Treasury itself - has agreed that the only marginal driving force for the world's largest stock market - i.e. the catalyst for the biggest artificial bull market rally in recent history - is the Federal Reserve, specifically the amount of debt monetized/liquidity injected.

And then that chart slowly disappeared from view for the simple reason that for all of 2013, the Fed's balance sheet would grow by an equal $85 billion per month in linear "bottom left to upper right" fashion, resulting in an S&P500 that tracked this balance sheet growth tick for tick.

It is time to revisit this chart because as Deutsche Bank's Jim Reid reminds us, the days of relentless Fed balance sheet, and thus S&P, growth are over, thus the need by Deutsche Bank to "raise the warning flag".

The risk sell-off we've seen in recent weeks frustrates us a little as the chart we've published most this year has pretty much predicted that tougher times would come around July. We've been paying it a lot of attention for over a year now but decided to wait until the autumn before we raised the warning flags. The chart in question (included in today's pdf) is the one showing the Fed balance sheet and the S&P 500 (as a proxy for risk generally). As you can see, since the Fed balance sheet was used as an aggressive policy tool post-GFC, the graph suggests that the S&P 500 is well correlated with the size of the Fed balance sheet with the former leading the latter by 3 months. Given that the Fed have recently signalled that they will likely be finishing expanding their balance sheet in October, 3 months before that was July. This is important as virtually all of the mega rally in the last 5 years has come in the Fed balance sheet expansion periods. The other periods have been more challenging for markets.


In other words, the growth is over. As for the downside, well that's where the Fed's tightening rate hikes come into play, and once the market has determined the date when the Yellen Fed begins fighting "noisy" inflation and "lack of labor slack", watch as the entire stock market is sold off in calm, cool and orderly fashion. Just like high yield debt... 

... over the past month.

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icanhasbailout's picture

When did DB start hiring wild-eyed conspiracy theorists?

FL_Conservative's picture

Well, thanks alot, Captain Obvious.

Chief KnocAHoma's picture

It's just so suspenseful...

What will blow first CDS timebomb, bond market, treasuries, Iran, Gaza, North Korea, China, Ebola, Ukraine, Obamacare, border crisis, California drought, massive government bankruptcies, a nuke in the west, or some yet unforeseen event.

It would be interesting to see Vegas odds on these events.

PartysOver's picture

Way too many options to consider.   Is the Black Swan starting to warm up its wings? 

As long as it is not flying BUY, BUY, BUY!

SoberOne's picture

Stack stack stack. Fify.

sodbuster's picture

"Projected path of Fed B/S"- Does that stand for "projected path of Fed BullShit"?

Obchelli's picture

Nope march to new All Time High just started and will utilize latest shorts to squeeze them out. There is no way FED and centrla banks will let this or any other market to POP. There is always Belgium to come and save the day

PartysOver's picture

If that was not a predictable Low Of the Day in ES then I don't know what is.   Yep, New ATH by end of August.

logicalman's picture

If you are looking for odds on anything, Brit bookmakers are the best.

They'll give you odds on anything you might wish to put money on.

They are careful to make sure that on average the house always wins, but that's gambling for you.

Spine01's picture

This is boring, this was described already here. First FED RES stops QE, then starts increasing rates, then economy collapses into a triple dip recession, then FED RES restarts QE and lowers rates again, and so on so forth until infinity!

End result is that the party continues. For those who think the party will end soon in collapse, they need to look at history for a reference. Inflation of 10^13 is not unheard of in history in periods of 50 years, and during that time the party kept on going big time for those who knew how to dance to the different styles of music.

Chief KnocAHoma's picture

I've always hated those guys that could dance to all different kinds of music. What was it we used to call them.... Oh yeah... FAGS.

trulz4lulz's picture

But never have we had the luxury of hyper information trading and real time spying applications. The ramification of instant info and its effect on a market has never been observed until now. So really it seems to me, that when they can no longer create the illusion or maintain its existence, that information will travel at light speed due to fiber optics. Horses, telegrapgh, newsprint, and word of mouth are nto as fast as the speed of light.

Bloppy's picture

Hmm, the Burrito Bubble continues as CMG shoots up another $10 even if LOCO takes a day off. TSLA cultists have that POS surging higher again in order to kneel before their god, General Musky.

Meanwhile, Sean Hannity arrived in Israel today to get the facts for himself while Russell Brand shoots his mouth off from home:


SoilMyselfRotten's picture

When he arrives in Israel which 'facts' will he receive?

bobby02's picture

"the graph suggests that the S&P 500 is well correlated with the growth of the Chinese maple in my back yard. "

bobby02's picture

"This is important as virtually all of the mega rally in the last 5 years has come in the human population expansion periods. The other periods have been more challenging for markets."

Since early May, the Fed balance sheet has reached an unprecendeted size. As a result, ice cream consumption over the period has increased 50% q-o-q. If the evil banksters do not cease their heinous money printing, the generation born today will never know the joys of ice cream.

Tommy Carvel did not devote his life to fighting Skokie Nazis to have such an evil befall the exceptional, God-fearing people of these great United States

Spine01's picture

spine001 did a multivariate correlation model where he only added the start and stop of the different QE's and the 6 month market look into the future and the correlation coefficient was 0.999 squared. If that is not correlated and time correlated nothing is. There was a serial time series correlation strongly suggesting causality too.

This was published as a comment on zerohedge by spine001 in 2013, I think.

Wait What's picture

to think, it only took DB 5 years to figure out what TD has been saying all along... and apparently spine001 figured out a year ago.

next thing you know everyone subject to the sleeper effect will be patting DB on the back for 'calling it' before anyone else.

the level of ignorance, stupidity, and delusion in the world is sometimes completely astounding.

LawsofPhysics's picture

Government paper about to become priceless...


(go ahead, think about it for a second before responding)

ekm1's picture

Only the paper one, not electronic dollars.

BandGap's picture

In a very real sense when we think that the govenrment runs the economy then, well, they do.

They can pull the plug anytime. And they will when the time is right.

ekm1's picture

There are 3 co-equal powers in USA:


- president

- senate

- house


Then there is the deep state, lobbies warring each other for control of government money.


White "government" are you talking about exactly?

vernwvu's picture





Just saying...

Yen Cross's picture

  Yes, we can't forget the SCOTUS lifers...

ekm1's picture

Scotus has no army, no police. no money.



Boxed Merlot's picture

Scotus has no army, no police. no money.




You sound like ol' Hickr'y. (allegedly)  The tragedy is, the US has adopted the ME mentality of “might makes right” whereas in its inception even foreigners found the “US was good because its people were good.” 

I know, especially now, 6 years into the current executive’s term, the polarization of the “American” people is just about complete, we may as a nation be facing the same dilemma we faced 150 years ago, i.e. “testing whether that nation or any nation so conceived and so dedicated can long endure”. 

Perhaps we’ve reached the limits of our endurance.  I hope and pray that’s not the case.  I would like to think we would recognize the need to voluntarily adhere to the rule of law and the Judiciary reclaims its rightful place in the US tri-unity design of checks and balances. 

Any jurist, legislator and /or executive appointee with anything other than a single, valid, US citizenship should be sent packing, if not tried as a traitor and dispatched as such.

And on a lighter note, End the Fed!



icanhasbailout's picture





fixed it for you

innertrader's picture

Companies and Organizations are FORCED to create a lobby to send $$$ to Washington to protect their businesss FROM the government!!!!  I'm NOT speculating, I have PERSONAL EXPERIENCE and knowledge.... going back 30 years!!!!!

ekm1's picture

Thank you

"Protecting" your business translates as screwing the other lobby's business, quite often and probably the norm recently.

WillyGroper's picture

Mob protection racket.

logicalman's picture

All of the above answer to the banksters.

Wake The Fuck Up!

reTARD's picture

Projected path of Fed BS, as in Fed bull shit?

Fuku Ben's picture

It's hard to notice the warning flag with all the distraction flags going up

Ebola flag
MH17 flag
Ukraine flag
Middle east flag

icanhasbailout's picture

to say nothing of the "US government voluntarily abandons nation's territorial integrity" flag

Utah_Get_Me_2's picture

Federal government purchasing billions of rounds of small/medium caliber ammo and labeling those 'reverent of individual liberty' as terrorists FLAG

Whootie_who's picture

EU moral hazard play at the BES.. just shows the banksters they will always win when the gubberment is the pit boss, and the taxpayer will pay the bill

Dr. Engali's picture

Apple's new iPhone 6 will save us. Rumor has it that it comes complete with a Bomb Gaza and Ebola Virus game app.

Dr. Engali's picture

Not as long as the ten year remains below 2.5%. 

Headbanger's picture

There you go again fonz you homo.

Better yet, let's see if you catch Ebola.

Dr. Engali's picture

Well the important thing is that the 75 Chinese gave their lives up for the iPhone collective.

813kml's picture

Hipsters across the US shall fire up the Virtual Candle app in their memory.