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"Another Reminder How Addicted Markets Still Are To Liquidity"

Tyler Durden's picture




 

From Deutsche Bank's Jim Reid

The recovery from the lows after Bullard spoke yesterday is another reminder how addicted markets still are to liquidity. Indeed in today's pdf we reprint and  update a table from our 2014 Outlook showing the various phases of the Fed's balance sheet expansion and pausing over the last 5-6 years and its impact on equities and credit. We have found that the relationship broadly works best with markets pricing in the Fed balance sheet move just under 3 months in advance. We've also included our oft-used chart of the Fed balance sheet vs the S&P 500 to help demonstrate this. So end July / early August 2014 was always the time that this relationship suggested markets should enter a new more difficult phase.

With this lag, the table rather neatly shows the pulsing reaction of credit and equities to the growth and pauses in the growth of the Fed balance sheet around the Lehman demise, QE1, QE2 and QE3. After the initial emergency expansion of the Fed balance sheet in 08 where risk assets still declined (they would have declined much much more without it) we have alternated between aggressive balance sheet growth and large to huge risk-on on one hand, and small balance sheet run-off and risk-off on the other. This period post the end of July is just the latest evidence that this pattern is real. So we still think central bankers hold the key to markets going forward and there seems to be a hint of change in the Fed.

 

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Fri, 10/17/2014 - 10:19 | 5346287 junction
junction's picture

No surprised, considering how banksters were addicted to druglords' money to provide them with liquidity.

Fri, 10/17/2014 - 10:22 | 5346316 nink
nink's picture

I guess we need to face facts we are going to print till we can't print no more.  QE5 here we come....

Fri, 10/17/2014 - 10:31 | 5346405 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

QE to infinity

Fri, 10/17/2014 - 11:04 | 5346669 TruthInSunshine
TruthInSunshine's picture

Suicide markets.

Saw this exact shit right before both 99 & 2008 crash.

Fri, 10/17/2014 - 12:55 | 5347383 KnuckleDragger-X
KnuckleDragger-X's picture

QE will only work as long as the greedy lock it up in their piggy banks. If it escapes into the wild hyperinflation won't be far behind.

Fri, 10/17/2014 - 10:17 | 5346288 SillyWabbits
SillyWabbits's picture

Is breathing an addiction?

Fri, 10/17/2014 - 10:18 | 5346290 Pooper Popper
Pooper Popper's picture

Hey banksters,your momma may love you,

Bu everyone else thinks your ASSHOLES!

Fri, 10/17/2014 - 10:19 | 5346293 aliki
aliki's picture

fucking joke - i always knew they'd do QE4; just didn't think they'd be talking about it this quick (you know, as in before QE3 ended). fuggin pricks can't even let the market correct 10% without marching the fed-stooges back out (2 this week) talking about QE4. im sure this headline will help matters:

4 GERMAN BANKS SAID MAY FAIL STRESS TESTS: HANDELSBLATT - Bloomberg

Fri, 10/17/2014 - 10:24 | 5346302 saveUSsavers
saveUSsavers's picture

I say the Bankster's trading desks TOOK IT DOWN TO TEST THE FED ! Down 8% and the Bastard Fed mouthpieces of S come out of the woodwork. A coincidence? All they do is pull algo bids. US has never been this corrupt in history.

Fri, 10/17/2014 - 10:29 | 5346390 amacintn
amacintn's picture

..took the words right off my keyboard.....pull bids, let vol. skyrocket % wise in a week and then force more stimulus....UFB....

Fri, 10/17/2014 - 10:46 | 5346535 JRobby
JRobby's picture

Forced stimulus. The new normal. When the crooks are fighting in the sandbox it is saying something on a number of levels.

Fri, 10/17/2014 - 10:22 | 5346320 madcows
madcows's picture

is it an addiction to liquidity or just recognition that you will be punished if you stay in bonds and you'd better get into stocks or risk getting slammed.

The world is bankrupt, and the central banks are going to print until every zombie bank is recapitalized and every government debt is inflated away.  there is no other option except to declare bankruptcy, and the bankers will never let that happen.

to the moon alice.

Fri, 10/17/2014 - 10:24 | 5346329 SheepDog-One
SheepDog-One's picture

Only relevant market component today is whether there are good rumors the Fed central banksters will be buying more stawks or not.

Fri, 10/17/2014 - 10:24 | 5346332 Hero Protagonist
Hero Protagonist's picture

Aptly put on the chart Fed B/S

Fri, 10/17/2014 - 10:25 | 5346347 Save_America1st
Save_America1st's picture

market is flying high today...up over 200 now while PM's are getting monkey hammered.  Must be some more of that sweet QEternity heroin coming back soon. 

Fri, 10/17/2014 - 10:42 | 5346506 SheepDog-One
SheepDog-One's picture

Or just a routine pump and dump to clean out a bunch of muppets. Either way I don't really care, just watching the insane casino from afar.

Fri, 10/17/2014 - 10:44 | 5346524 Save_America1st
Save_America1st's picture

yep...got my popcorn ready and my stacks high and shiny!  it's just a matter of time...and there ain't much time left in my opinion.

tick...tock...bitchez...

lol

Fri, 10/17/2014 - 10:26 | 5346364 JenkinsLane
JenkinsLane's picture

No shit.

Fri, 10/17/2014 - 10:27 | 5346373 ZippyBananaPants
ZippyBananaPants's picture

Bullard just did enough to get Joe Me-invest-longtime into the weekend.  Then some other Fed Pres will poke up next week and say the opposite.  We saw all of this in 2010-11 and somewhat in Greece!

Fri, 10/17/2014 - 10:34 | 5346445 ramacers
ramacers's picture

pretend protends perish.

Fri, 10/17/2014 - 10:44 | 5346520 buzzsaw99
buzzsaw99's picture

We now know that 1824 will be defended by the PPT.

Fri, 10/17/2014 - 10:49 | 5346557 toros
toros's picture

Feds balance sheet was up $19B last week.

Fri, 10/17/2014 - 10:51 | 5346575 Ban KKiller
Ban KKiller's picture

That would be an indicator, no? YES! Proof. 

Fri, 10/17/2014 - 10:51 | 5346563 Ban KKiller
Ban KKiller's picture

Prudential, BofA, MSF, Wells Fargo, Citigroup, Goldman.....that guy in your office with the sniffles? That coke whore who sucked you off? That shit you sniffed up your nose? That coffee you bought this morning? 

We handle it all for you and just give you the best! You fucked us and now you STILL trust us to serve you? Oh, good!

Where is Mr. S? The Banksters. He has been on vacation, in rehab, in Europe, visting sick relatives, take your pick of the stories. For sure he has been gone for 4 weeks now...where is his family? 

QE won't stop....does anyone need more proof? 

Fri, 10/17/2014 - 10:49 | 5346567 jubber
jubber's picture

Russell fading a little here

Fri, 10/17/2014 - 10:54 | 5346608 WTFRLY
WTFRLY's picture

HAZMAT responds to Ebola scare at Pentagon, woman 'recently arrived from Africa' vomits on bus

http://wtfrly.com/2014/10/17/hazmat-responds-ebola-scare-pentagon-woman-...

Fri, 10/17/2014 - 11:01 | 5346647 Spungo
Spungo's picture

I'm waiting for someone to accidentally say "go back to Africa". I will die laughing when it happens.

Fri, 10/17/2014 - 12:21 | 5347190 RaceToTheBottom
RaceToTheBottom's picture

Bullard is helping GS hunt Muppets.

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