The Only Two Charts You Need To Understand The S&P 500

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

As long as corporations continue borrowing money to buy back their own stocks and the yen keeps dropping, the SPX will continue lofting higher. 

Why is the S&P 500 rising, even as valuations are getting stretched, profit growth is declining and sales are stagnant? Two charts explain it all. Here is a chart showing the S&P 500 companies that have been buying back their own stocks (often by borrowing cheap money to do so) and companies that haven't bought back hundreds of billions of dollars in their own stock.

The unmanipulated sector rose a bit, while the stock buyback crowd soared:


Here is the S&P 500, with red lines marking its recent lows:

Here is the Japanese yen ETF FXY, with red lines marking its recent highs. The correlation is near-perfect: when the yen drops, the SPX rises.
This is a function of the carry trade, in which speculators borrow money in near-zero interest-rate yen and buy U.S. stocks with the cash. The financiers make money in two ways: the buying pushes the U.S. stocks up and the decline of the yen means they can pay back their loan in cheaper yen.
But the correlation isn't caused by just the carry trade: it's also a function of trading computers keying on the carry trade for momentum and direction.
The correlation is also visible in two ratio charts: SPX-FXY, and FXY-SPX:
As long as corporations continue borrowing money to buy back their own stocks and the yen keeps dropping, the SPX will continue lofting higher. If either of these drivers fades or reverses, the rally in SPX will reverse, too.

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mattgallis's picture

I love all the red and green lines. 


Divided States of America's picture

So another nuclear accident in Japan = S&P 500 to 3000??? makes perfect sense

Ahoy Polloi's picture

Quick! Somebody get that Israeli security team on the blower.

KnuckleDragger-X's picture

No need for an accident, Abe&Company are doing a fine job all by themselves.....

Obchelli's picture

All foreigners buying US stocks not only benefit from stock appreciacion but also exchange rates moving in right direction for them. with 0% inflation as Governments tell us they are doing better thabn americans

gdiamond22's picture

Don't forget about your friendly Central Bankers buying equities. A little more influence on the markets with all those printers they have.

Shizzmoney's picture

As well as those in work in govt buying them as well.

Pelosi and Boehner have one thing in common: they are rich because of stocks.

daveO's picture

And Japanese gov. pension fund forced into buying. 

Bay of Pigs's picture

I'm surprised CHS missed that very important point.

They are making money hand over fist with this kind of manipulation done on such a vast scale.

thepigman's picture

When it comes to blatant financial engineering, the USA is the tallest midget on the global dung heap. 

alexcojones's picture

Nobody does chart porn better than ZH.

The Count's picture

...but it also shows you can come up with charts to prove any point you like.

Amish Hacker's picture

Obviously, we need two more ETFs: one that follows the S&P Buyback Index, and the other for an index of the Most Shorted. All aboard!

Disc Jockey's picture

So bullish I think I'm getting hard.

Eyeroller's picture

For an erection lasting longer than 6 years, please contact Dr. Yellen...

Grinder74's picture

Eww, she could shut down my erection in .006 seconds.

oudinot's picture

its that simple

but when the yen carry drops they will devalue the euro  to keep the equities flying

toady's picture

Pretty soon the only entities that will own stocks are companies registered on a stock market.

Bell's 2 hearted's picture

the sad part is ... take someone with $250K laying around ... should that person

A) invest in small business and deal with red tape hassle and start up "uh ohs" and risk losing all


B) just buy stock ... and get "guaranteed" double digit return


FR killing the real economy

daveO's picture

Ultimately, the FED owns it all, if not stopped.

Motorhead's picture

Charts, bitchez!

medium giraffe's picture

Fiat feedback loop. 

(I'm thinking these charts could use a few more indicators too.)

tawdzilla's picture

In all of humankind, I've never heard of a sustainable economy built on leveraged stock buybacks.

saints51's picture

Welcome to Murica. Where the nightmare to some and dream for others never ends.

Dame Ednas Possum's picture

The dream is realised by fewer and fewer...and it's longevity is fast expiring.

Buyback is finite, just like Chinese patience.

mayhem_korner's picture



Let's call it the monosodium glutamate market.

Bell's 2 hearted's picture

yen probably dead in the long run




put me down for being a bit wary that everyone is on the same side of the boat (short yen)


IF (when) China devalues ... i could EASILY see a huge short squeeze in yen (back under 100)

Raoul_Luke's picture

Yeah!  I wish I had seen this earlier but I ain't touching it with a ten foot pole now.

Bell's 2 hearted's picture

DXY above 89


i think todays move took out 2010 high

Apostle of Unknown's picture

Imagine that some day in the future, Japan installs capital controls because the yen is dropping too fast. What would that do to all those speculative trades that have a yen leg? (Based on correlations, that would be most trades...)

Dr. Engali's picture

That's five charts.

virtualInsanity's picture

That's what I'm talking about. That's the new type of analyses we need. Brilliant!

The Count's picture

It's like circular thinking, just on a monetary level!

Quinvarius's picture

You get more of what you subsidize.  No matter how much stock get bought back, new issues will flood in and return balance.  If the Fed buys stocks, more stock will appear.  If the Fed buys bonds, new bonds will appear.  It is not a closed system.  The way to make money is not to buy paper in this situation.  It is to issue more of it.

darteaus's picture

Issue moar AND be the first spender!

adr's picture

Notice how real sales, people working, true profits, and production have absolutely nothing to do with those charts.

The S&P index has become nothing but a function of the relationship between worthless numbers that a computer uses to trade against.

 But those worthless numbers are making billions in paper cash for the "right" people. So it will continue.

JR's picture

@speculators borrow money in near-zero interest-rate yen and buy U.S. stocks with the cash.

That near-zero interest-rate yen (and dollar) is probably the most significant crime from government in recent years - to actually design programs to steal from its citizens and give to itself and the speculators.

daveO's picture

The Japanese are getting hosed two ways. Inflation and with their pensions being directly poured into the US market.

darteaus's picture

Yen + Ruble + whatever toilet paper Venezuela is using for currency + brazil + Euro...

Until the entire world finally figures out that fiat currencies are frauds

JR's picture

And this believe-it-or-not from your InvestmentWatch link to Boston’s Herald’s front page article – “SHE’S HOT OFF A HALF-EMPTY HALL IN D.C., SO TODAY … Please, Boston: “SHOW UP FOR HILL: Tom Shattuck’s Personal Appeal”:

LOL –> Boston Herald front page begs people to show up to Hillary’s speech today.

December 4th, 2014


…complete with pix of "HILL" and near empty hall shot from an empty balcony with just a little group down in front. They may be trying to promote her, but instead, they define how she's not drawing crowds..

yogibear's picture

I see future bailouts. Too Big to Fail on steroids.

q99x2's picture

At this point who cares. Most decent folk are armed and have ammunition, gold and food. Let the good times roll.

Temerity Trader's picture

Okay, so when will we see something tradable? Something which we haven’t all seen and heard one-thousand times before? It’s the Fed! Duh! Cheap, loose $$ propel massive buybacks and enable consumer buying frenzies. Also enable massive government deficits. I really don’t see it ever stopping; why should they quit? It is working better than they could have dreamed. A nation of greedy and gluttonous consumers, are exactly what the Fed’s models targeted; nearly 100% successfully.  So, unless we provoke Putin into starting WWIII, then all bets are off. Although I would still not write the Fed off even under those circumstances. They could go QE extreme to repair the damaged infrastructure with Dow going +1000. Builders would soar with demand for replacement structures in non-contaminated areas. Win-win.

lasvegaspersona's picture

Soon comes the tears and the tearing of hair.

This is a product of a failing monetary system and the banks response. It has always worked for a brief period of time and then has always failed. Right now Abe is supplying the Everclear for the punch bowl but I just don't think the Yen will ever get to 245 or whereever it will need to be to keep the S&P rising. The world needs more than what it is getting. The world needs real production and movement of goods. It is not going to have that if the currency distorts the value of commodities. The debt taken on to finance commodity production will begin to fail, then the Fed and the Japanese central bank will have to create even more base money.

The hyperinflation scenario is well known. It always happens when central banks create too much base money to replace failing debt. This is a feature of pure fiat currency systems. The Fed has not figured out a new way around this problem. They are just in the middle of Act3. Then ending is going to be the same as it was the last time these actors performed.

Inthemix96's picture

None of this bullshit makes any sense, or means anything at all to the average bloke who finally and ultimately understands from where, and how his unit of labour originates from.  And exacty how his labour is valued.  In fucking worthless, printed from thin air script.

Fuck the S&P, fuck the stock market, fuck the central banks, fuck the lot from top to bottom.

Your value is what these criminal fucking maniacs deem it is, at a minimum of 29.9% APR, at your expense, so these fucking cunts can continue to live the lives they so 'Richly' deserve, at your mother fucking expense.

This isnt even a charade anymore, this outright, global, immoral, fucking theft.

This isnt even the worst ever downturn in human history, this is outright theft, this is a blatant and paid for with ultra protection robbery, this is the raping of mankind, and at this time, anyone who tells you different is a one of them cunts.

Living high on the backs of 'Us'.  How more fucking blatant do you want it bitchez?  We are being skinned alive no matter what you call it.

Its about time we fucking skinned the fucking twats back.


Inthemix96's picture

Nearly fucking forgot.

Mother fucking,



Ginsengbull's picture

Cock sucking mother ass fucking douchebag cunts.


Notice how as soon as a financial correlation is publicized, it magically stops working.


Just to punishment-fuck anyone who buys into the bullshit idea.