What Happens Next?

Tyler Durden's picture

Since The Federal Reserve unleashed QE, US Stocks have massively outperformed the Rest of the World...

So the question is what has happened since the end of QE3 in Oct 2014? Simple - it's been all ECB and BOJ as The Fed balance sheet has flatlined...

Did the "all stimulus is fungible" message just shift? A look at the red oval in the upper right, raises the question - what happens next?

US Stocks have continued their rise - with ECB/BOJ 'money' enabling the S&P to reach a point where it is over 400 points rich to The Fed's balance sheet.

As The Fed begins to plan for normalization of the balance sheet, are US stocks set to catch back down to the world's non-US stocks?

Through 2019, The Fed has over $900bn of Treasuries maturing...

Now explain how that is not 'tightening' financial conditions.

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Snaffew's picture

let's see if the noble group and others slam silver and the PM's into the close.

shizzledizzle's picture

Kinda surprised the onslaught hasn't commenced already. 

FreeShitter's picture

They dont need to, today...they have been buying CL instead.

jomama's picture

They have been buying BTC instead.

 

FTFY

pebblewriter's picture

Absolutely.  Not to mention delaying a nice plunge by USDJPY.

meta-trader's picture

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FreeShitter's picture

all time highs are coming next.

CJgipper's picture

Obviously.  What I'm reading here is that the ECB and BOJ efforts to prop up stocks are failing because their currencies are failing faster than the USD.  They'll have to keep printing more and more, but their people will keep moving money into USD via US company stock.

Consuelo's picture

 

 

'Since the Federal Reserve unleashed QE...'

 

Astute readers will no doubt notice something far more telling in that first graph, than all things 'QE'.   In nearly any chart/graph one can think of that involves housing, debt, deficits and most importantly, Credit Growth, one will see a reoccurring 'ramp' which begins to take shape (northwards) in the early-mid 1980's.

That's no coincidence.    It was decided to 'Damn the torpedoes', and there sure as bloody hell ain't no looking back now. 

Batman11's picture

Where did it all go wrong?

Neo-classical economics had led to the disaster of the Great Depression; it wasn’t the obvious starting point for an economics that was to be rolled out globally.

Milton Freidman and the University of Chicago rebuilt it around its original core.

Unfortunately, this is where the problems were and so it turned out to be just as bad as it was before.

1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalization phase

1929/2008 – Wall Street crash

1930s/2010s – Global recession, currency wars, rising nationalism and extremism

The pivot points are the Wall Street Crashes of 1929 and 2008.

Neoclassical economics doesn’t look at private debt in the economy and can’t see the problems building.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

It’s all in the preparation and this problem was baked into the cake from the start.

Now we understand the problem of private debt who blows up next?

Australia, Canada, China, Hong Kong, South Korea, Norway and Sweden look likely.

 

 

wmbz's picture

What happens next?

A whole lot MOAR. Who the hell is going to stop it?

Even the assholes that want a crash and burn to make Trump look like shit, won't do it. They are having to much fun loading their pockets. Man the pumps.

scaleindependent's picture

The Fed has stated that it will continue to "reinvest" maturing Treasuries by buying other treasuries.  To my knowledge, that has/will continue.

noless's picture

Yeah, I assumed they would just roll the purchases back into whatever they need to, whether that's even necessary at this point.

pebblewriter's picture

IMO, there have been three phases of propping up stocks.

Phase I was QE.  It was big, expensive, kinda clumsy and very hard to fine tune.  Like drinking from a fire hose.

Phase II was the yen carry trade.  Not quite as big or expensive, easier to fine tune.  But, had its limitations due to the impact on Japan which had to import more expensive oil and food.

Phase III has been a rotation of CL, USDJPY and the new algo killer VIX.  They're like cockroaches: as one runs out of juice another takes its place.  Relatively inexpensive, very easy to fine tune.  And, with VIX, no actual economic repercussions (except for hedgers and speculators.)

The safety net -- just in case -- during all three phases has been direct equity purchases by BoJ and SNB.

I don't know if or when the problems of the world will overcome these very effective tools' ability to keep prices rising.  But, they've proven themselves over and over again to be very, very effective.  It's turned a lot of us who prefer swing trading into scalpers, and has made plenty of "hedge" funds decide not to waste money on hedging.

Fortunately, there are good, tradeable setups almost every day if you understand how TPTB are conducting the game.  And, it's hard to imagine it won't come crashing down at some point.  Until then, I prefer to put the word "market" in quotation marks.

http://pebblewriter.com/its-war/

Iconoclast's picture

Everything is just so fubar, we've discussed it to death, there are no answers anymore, it's the end of days for our financial system.

Lonesome Crow's picture

"Now explain how that is not 'tightening' financial conditions."

What am I missing here? Holdings are holdings. They were never an increase or ongoing easing after the purchases stopped. They may have been a subtle tightening since P&I that could have gone elsewhere went back to the Fed. If anything, is not maturity more of easing than tightening since the Fed is no longer absorbing that P&I?

Russdiamon's picture

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syzygysus's picture

Well, Furious Pete tried eating a 30lb burrito today and failed (youtube), so while I think many things are possible, MOAR isn't always the answer. 

 

MOAR QE?  MOAR BURRITO?  Something is going to explode, from one end or another of the bubble.