The One Chart Which Explains "Why Markets Are All Falling Down"

Tyler Durden's picture

Yesterday we felt like a brief moment of gloating was deserved, when we noted that, based on the WSJ's reporting, the somber mood among Davos "prominent investors" and billionaires was "irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long.... from this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate."

In other words, precisely what we have said all along. But there is much more work to do before the victory lap, most importantly in explaining what happens next.

Well, since it is now common knowledge that it is all about central bank and rigged markets, the next logical step is to predict what happens to markets when looking at "asset prices" from a purely central bank liquidity standpoint, aka the Austrian money flow perspective.

Here, we remind readers that in early 2013, just as the BOJ was preparing to unleash an epic QE episode in order to offset the lost liquidity injections which the Fed's upcoming taper would lead to, we explained that instead of looking at central banks as standalone entities operating within their own liquidity domains, one has to look at global liquidity as a coordinated whole, one in which every central bank is now an integral cog and where inside money liquidity is not only globally fungible, but transferable from point A to point B at the push of a buy or sell button.

And while for the longest time many, including us, were focused on DM central banks, over the past year a new market participant emerged: Emerging Markets, whose $7 trillion in reserve assets had become a source of reverse liquidity, or "quantitative tightening" as dubbed here over the summer, as numerous nations have been forced to liquidate USD-denominated assets to compensate for the loss of trade exports and oil revenue in the aftermath of the death of the Petrodollar which initially was noticed on this site alone and subsequently everywhere else.

Which brings us to the topic of this post, namely "why are markets all falling down?" and the answer by Citigroup's iconic, and one of Wall Street's very best, analyst Matt King who adds that "many investors have been struggling to explain the magnitude and violence of the recent sell-off. Why are EM and commodity price weakness proving such negatives for DM as a whole?"

The answer is shown in the chart below. We hope that after they see the following chart, which shows not only DM net liquidity injections (i.e., q-easing), but also EM net liquidity outflows (i.e., quantitative tightening) and which explains not only the recent selloff, but also shows how to trade global central bank and sovereign wealth fund and reserve manager flows, all confusion and denial will end.

Or perhaps not. As King himself pessimistically concludes, "Perhaps if this sell-off fizzles out by itself, as it did last October, central banks will again be spared the need to face up to the distortive effect they have had upon markets, and can continue the pretence that markets are still following fundamentals. After all, for many of them, this has been the sell-off which ‘isn’t supposed to be happening’."

We couldn't have said it better ourselves.

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Aussie Battler's picture

"Inflation is always, and everywhere a monetary phenomenon" - Friedman.


And (true) inflation includes asset prices.

Pool Shark's picture



ECB & BOJ:  Buyers of last resort...


bonderøven-farm ass's picture

Feeling QuEsy yet, bitchezz....? 

Hedge accordingly.


two hoots's picture

"with what they say has been central-bank intervention that has gone on too long"

So are they expecting the Fed to continue to tighten?  Will the Fed feel pressure to do so (from the Davos crowd)?


All Risk No Reward's picture

>>"Inflation is always, and everywhere a monetary phenomenon" - Friedman.<<

"Inflation and, ultimately, exponential debt growth collapse depressions, are always, and everywhere a debt-monetary phenomenon."

TFTFY so that it encapsulates the full context of the situation.


Stainless Steel Rat's picture

Someone's defending WTI at 32.19 right now...

ali_baba's picture

Yeah, apparently there's still some people who don't believe joos are in full control of every aspect of their lives.

RiverRoad's picture

....the sell-off which 'isn't supposed to be happening'.  Of course.  Melds perfectly with the recession/depression "that shall not be named" by the present Fed/administration anyway.

PrezTrump's picture

This is # what in how many weeks...

This one I like... thank you tyler


Eeyores Enigma's picture

Hey Cap - I think this one is better;

We live on a finite planet with finite resources and therefor finite growth and therefor finite debt.

TPTB have made a Herculean effort to detach debt/money from the above mentioned reality but have failed but did succede in ramping up economic overshoot into the stratosphere.



two hoots's picture


And an infinite ability to procreate ourselves to ruin


redd_green's picture

that's a tough one.  The core issue Friedman didn't talk about, is that you can't separate monetary inflation from non monetary supply and demand, when it comes to price increases.   You get a major drought, food supplies drop, and prices increase.  You have a Fed that pumps trillions in garbage money into the banking system and prices increase.   As a consumer, you can't see what part of the 5.00 for a bunch of onions is due to the drougth and which part is due to the crooked effing Fed.

chubbyjjfong's picture

I believe its important to both consider and understand CB liquidity as a whole, with particular respect to its affect, not only on Emerging Markets, but also the Quasi, or Psuedo-Quasi Emerging Markets (QEM's). These markets, although small, are vast in quantity and when aggregated, provide a significant rostrum for both local and regional territories, at a national level.

This significant quantum of overlooked western world (and south-south western world) economic activity has been inversly disorted in a most linear way by CB liquidity. I am not at all surprised that economic academics have completely neglected, or more probably unnoticed, this overtly obvious centrally planned disaster. You need only look at Borneo.

Spiritof42's picture


This is the second time I've tried to understand what you are saying. Are you spoofing?

knukles's picture

He sounds like a guy I fired once after I took over a place.  Nobody understood anything he said. 
It was bizarre.  Kinda like Black Eyed Children being Possessed during lunch break.
Best left for entertainment purposes only.

CapnJackDaniel's picture

You had me at You need only look at Borneo.

4 wheel drift's picture

i think he is trying to sound like an eko-no-mist....


from borneo.....



LaugherNYC's picture

Obvious spoofer, but sounds a lot like Krugman. Give this Chubbyeffer a Nobel! A Pulitzer! An Oscar (if he is the right color!)

bagehot99's picture

Ah yes, Borneo. The canary in the coal mine.

Wait, what?

leftcoastfool's picture

Borneo?  Thats wild, man!


                                                        ... get it?

CapnJackDaniel's picture
sicut vadit Borneo ita mouetur mundus
redd_green's picture


"Fuck the fed."


 Yes.  With baseball bats, and pitch forks

ISEEIT's picture

Meanwhile most "folk's" just accept the lies.

The very foundation of lies which has defeated humanity at this point hardly matters.

These monsters are hell bent on seeing this thru.

They actually believe its possible. Of course they're wrong.

However they do not care.

The sickness has taken them.

Sorry_about_Dresden's picture

The alternative is too terrible to consider.

We have plenty of tires and gasoline but, they must pay the NYPD pretty good. We saw how they treated the OWS folks.

"we maced a few folks"

morethan1's picture

OWS was just an excuse to get riots going again. A better approach is the MLK process and educating the country on the truth followed by the states taking back power from the feds.

bagehot99's picture

I hope that Governor Abbott of Texas is the leader I believe he is. Because Texas has enough clout, and is located so critically, with its own oil and border, that if they decide to demand their soveriegnty back, they might just be able to pull it off.

11b40's picture

Haha. How? With their Mexican army?

Without govt handouts, TX would be sucking air even worse than they are about to if oil does ramp soon.

flaminratzazz's picture

For when truth enters into a fight with the lies of millennia, we shall
have upheavals, a convulsion of earthquakes, a moving of mountains and
valleys, the like of which has never been dreamed of. The concept of
politics will have merged entirely with a war of spirits; all power
structures of the old society will have been exploded-all of them are
based on lies: there will be wars the like of which have never yet been
seen on earth.

AdolfSchicklgruber's picture

Here's a sweet line from MarketFraud headline article:  "Consumer confidence is the highest since 2007, buoyed by the cheapest gasoline prices and lowest unemployment rate in years."

Do people read that horse shit website and take it to heart? Do they sit up at night and use it as their "news" so they can go out and be good little day traders the next day? I dont know how they write this garbage with a straight face. Its naked propaganda used to calm the herd before it gets slaughtered. When can we start operation hang-a-banker.




Sudden Debt's picture

They'll let it crash to find a excuse to do another QE.

Not just to make the markets rise but to keep government going.

Deficits of 2 trillion are comming. A war is an excuse to blame it on.

They don't care about the markets anymore, the markets are the trickle down effect. To bad it's mostly the rich who receive it as they are the most invested.

Stay short untill the begin of october, go long then and eat any losses that follow because in that month markets will start to go back up. If possible an etf track in euro's.

So a long put now followed by a long call on the indexes and oil That's what I'm doing.

Croesus's picture

It's all moving according to a plan. 


RiverRoad's picture

The plan is to have the markets move up just prior to the Nov. election.  This is a presidential election year, afterall.  After the election, run for the hills.

Spiritof42's picture

If you have to ask why are markets falling, you must be a trained economist. 

The world economy operates as a debt based Ponzi scheme. The first in gain the most and fall last. The last in lose the most and fall first. The USSA was the first in. Emerging markets were the last in. 

Commodity markets including energy are reacting to the drop off in spending from debt bloated and unemployed consumers.

These brain dead academics made fatal mistake when the rigged the markets to favor consumption over production. It's physically impossible to consume what hasn't been produced. Their funny money had to go somewhere. So it went into financial assets instead of production.

It's a good thing I'm not an economist. If I was, I wouldn't have a clue.

TheFutureReset's picture

You are an economist, trained in the best way, experience and thought. The ones that call themselves economists in the academic and keynesian line which are in powerful positions are pretenders.

ThanksIwillHaveAnother's picture

Agree, but it is worse than a Ponzi because the "money" is created ny keyboard presses.  Typical Ponzi's cannot do that.   Let's call it Ponzi Uber!

1000 Bagger's picture

There will be sooner or later a new QE. Than the DOW goes to 50.000. But unlike 2009 this time Gold will double the Dow. This makes goldstocks to the biggest opportunity ever !

johnnycanuck's picture

The angst of the money changers wouldn't interest me one bit if they hadn't sucked so many pension funds and dart board investors into their ponzi schemes.


The world would be a better place without people who produce nothing of value yet demand extraordinary compensation and political power for their largely worthless and often criminal activities.


They have even managed to ruin what was once a useful entity and a means to invest in ventures that actually produced things of value to the grass roots.  


Sometimes ' good folks' get lost in the tsunami of bullshit.


The 'markets' are now like heroin addicts, need the next fix. The World needs a fix alright, a common sense fix.


Question to Trump or Cruz supporters, what would they do to address these issues? 

Spiritof42's picture

Question to Trump or Cruz supporters, what would they do to address these issues?

They expect Trump to make everything right by jawboning.

johnnycanuck's picture

Meaningless " jawboning." = road to ruin for the non .01%.



jcaz's picture

Nah-  the Trump support is because nothing gets resolved in this equation without war, and he's the fastest way to that conclusion.

Otherwise, we just get more mouth-breathers like Barry, who just pospone the inevitable.

Same old cycle-  prosperity, collapse, war-  lather, rinse, repeat.

All Risk No Reward's picture

Why does anyone believe a word any politician blows out of his/her mouth?

Trump is the type of liar that uses government power to kick grandmothers out of their home so he can personally benefit (eminent domain).

He's trash.  They all are trash.

Spiritof42's picture

Trump is the type of liar that uses government power to kick grandmothers out of their home so he can personally benefit (eminent domain).

You are referring to Atlantic City. As I remember the incident, it was over a parking garage. One woman wouldn't sell her house on the boardwalk for any price. 

Political leaders tend to be products of the times they live in. Trump, Sanders and Clinton have the ruthlessness an angry and frustrated public are looking for. Put either of them at the head of a government at the end of its reign of power and you have the makings of a government who can only make their lives more miserable.