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Why The Market Is Praying The Fed Does Not Plug Its Heavy Flow

Tyler Durden's picture


As we have recently pointed out (here), the exponential level of global central bank one-upmanship has created a level of dependency in capital markets never seen so obviously before. Critically, though, it is not the sheer scale of the balance sheet (or STOCK of assets) that is good enough anymore - equity market performance is all about the marginal change in that stock (FLOW). Nowhere is this "It's The Flow Stupid" better highlighted than in the chart below showing the periods of central bank balance sheet expansion coinciding almost perfectly with the largest surges in equity market performance. Furthermore, as the flow fades so the performance starts to fade (unable to counter the natural tendency of retail to exit the risky markets perhaps) and as the Fed's balance sheet begins to actually compress marginally (as it has the last few weeks), so equity market performance has turned negative - and notably so. This leaves the Fed with the dilemma that it is not just about the size of the bazooka anymore but the frequency with which you are willing to use it - and as we are likely to see this week - jaw-boning alone will not do the trick (no matter what today's market might have been hoping for) as unless we see the balance sheet of the Fed expand again (which would mean a rise of around 0.4% - something we haven't seen since mid February), we should expect the rolling 4-week performance of equities to continue to fall.

Fed Balance Sheet FLOW...

The heavy 'positive' flow from late November (green oval), surged equity markets. Their performance (green arrow) has not been better than at that time for the last five months.


As that flow faded to light marginal flow (orange oval), then rolling performance (orange arrow) started to wane.


Interesting side-note that this week and last are the first to see a negative rolling four-week performance (red arrow) since the rally began which coincides with an extended period of Fed balance sheet compression (negative flow - red oval).


Or an alternative is the Aggregate Monetary Base FLOW...

which is perhaps even more closely-related?

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Thu, 04/12/2012 - 22:54 | 2340449 Amish Hacker
Amish Hacker's picture

"Faster!" cried the Red Queen. "We're only standing still!"

Thu, 04/12/2012 - 22:59 | 2340467 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Bernanke is aware of this corelation, right?  He knows what he is doing....right?!

Thu, 04/12/2012 - 23:07 | 2340491 vast-dom
vast-dom's picture

Employ the bazooka too frequently and there won't be much more than rubble left to blow up or rescue.

Thu, 04/12/2012 - 23:50 | 2340615 Manthong
Manthong's picture

Kind of like the movie “Speed”..

if this bus slows down too much, it’s going to blow up.

Fri, 04/13/2012 - 01:07 | 2340752 The Big Ching-aso
The Big Ching-aso's picture



I think this market period is going through benopause.

Fri, 04/13/2012 - 01:20 | 2340767 bulldung
bulldung's picture

Benopause, great term Big Ching

Fri, 04/13/2012 - 02:08 | 2340824 Michael
Michael's picture

Do Democrats realize no real Ron Paul supporter will vote for Mitt Romney in the general election?

Lets fuck up the establishment. No real Ron Paul supporter will vote for Romney, that's a fact. That's how much conviction we have.

Join us to re-take possession of our own country, the USA. Make Dr Ron Paul your next president, no matter what it takes!

Obama Supporter Wakes Up To Ron Paul And Reality


Fri, 04/13/2012 - 06:51 | 2341014 BeetleBailey
BeetleBailey's picture

Michael.....you are absolutely right.

But, Paul is hopelessly outgunned by the MSM. Moreover, the populace is enamored with Oblama and/or Mittens, telling them what they want to hear - like all good children.

Ergo - this country is doomed.

Dr. Paul is the answer - but TPTB will never let him, or his son have any power of magnitude. Sad.

Fri, 04/13/2012 - 07:52 | 2341089 mick_richfield
mick_richfield's picture

This paradigm is, and of right ought to be, doomed.

I am casting my vote for the next one.


Fri, 04/13/2012 - 12:35 | 2342013 PalladiumJockey
PalladiumJockey's picture

thinks Rand Paul is a jerk.

Fri, 04/13/2012 - 08:36 | 2341160 spanish inquisition
spanish inquisition's picture

I can vote for anyone in a presidential election and that is who I am writing in on the ballot. You would need to organize exit pollers for districts to get accurate counts on the fraud that will no doubt happen. Get some videographers to record for posterity or a documentary so the young kids can start learning early how their vote doesn't count if they don't vote for the approved candidate. It probably needs to get done this election cycle, don't know how many we have left....

Thu, 04/12/2012 - 23:12 | 2340501 TruthInSunshine
TruthInSunshine's picture

The Ben Bernank is monitoring the situation, and his current expectations and projections are at least as good as his last epic batch:


The Ben Bernank Large & In Charge 


p.s. - All this 'plugging of the heavy flow' talk sounds like the Fed is menstruating and has a soaked tampon or something...

Fri, 04/13/2012 - 07:33 | 2341056 DanDaley
DanDaley's picture

That (The Ben Bernank Large & In Charge ) was hilarious.  Notice that gold was at 642 and silver at 13 on one clip. Did he know or did he not?  Me thinks he knew.

Thu, 04/12/2012 - 23:10 | 2340502 Dr. Engali
Dr. Engali's picture

Pay no attention to that man behind the curtain.

Thu, 04/12/2012 - 23:31 | 2340560 ACP
ACP's picture

Dunno. Maybe Bernanke is just getting performance anxiety?

I'm just wondering who's going to get the job after the Sack got canned.

After all, they are the mob and won't mind someone skimming a little off the top. They expect it.

Fri, 04/13/2012 - 02:19 | 2340834 The Big Ching-aso
The Big Ching-aso's picture



He's probably just suffering from some prebenstrual stress.

Thu, 04/12/2012 - 22:56 | 2340456 DoChenRollingBearing
DoChenRollingBearing's picture

FOFOA always speaks of the Stock and Flow of gold.  Most gold sits in place, the flow: stock ration is VERY LOW.

Thu, 04/12/2012 - 22:58 | 2340462 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I see, so you go from chat to up here!  You two timing son-of-a-gun!

Thu, 04/12/2012 - 22:59 | 2340468 DoChenRollingBearing
DoChenRollingBearing's picture

Guilty as charged!  I can't help it!

Fri, 04/13/2012 - 00:16 | 2340679 TruthInSunshine
TruthInSunshine's picture

I think my noscript, betterprivacy & https is running interference with chat.

Thu, 04/12/2012 - 22:56 | 2340457 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Those aren't the same charts?  lol....

Thu, 04/12/2012 - 22:58 | 2340465 infiniti
infiniti's picture

They've created a monster


Thu, 04/12/2012 - 23:02 | 2340473 Jim in MN
Jim in MN's picture

Black Swan, meet Unintended Consequences.  I'm sure you'll get along famously.


Air Force: N.D. oil drilling poses no threat to underground nuclear missiles


Associated Press Posted: 04/12/2012 12:01:00 AM CDT April 13, 2012 12:3 AM GMTUpdated: 04/12/2012 07:03:14 PM CDT


BISMARCK, N.D. - Intense oil drilling that's honeycombing western North Dakota has not disturbed nuclear-tipped missiles buried beneath much of the same real estate that companies are targeting for crude, the military says.

But the U.S. Air Force has become increasingly concerned about the booming oil activity above ground rather than below and has been meeting with industry officials as a precaution against potential conflicts.

Thu, 04/12/2012 - 23:05 | 2340480 candyman
candyman's picture

Ben the crack addict always needed another injection, shot, smoke, etc. in order to feel in control, untill he died of an overdose.

Thu, 04/12/2012 - 23:07 | 2340492 Oh-Globits
Oh-Globits's picture

the FAILURE is already "baked" in...

Thu, 04/12/2012 - 23:08 | 2340493 Cursive
Cursive's picture

These charts/analysis basically show that there is a PPT, regardless of whatever form you care to ascribe to it.  The Fed openly props up asset prices under the guise of the dual mandate of "full employment" and "price stability."

Thu, 04/12/2012 - 23:08 | 2340497 Number 156
Number 156's picture

The Federal Reserve Guns.

- A war poem by Ben Shalom Bernanke

Ctrl-p  ctrl-p  ctrl-p ctrl-p, 

ctrl-p  ctrl-p ctrl-p.

ctrl-p  ctrl-p,  ctrl-p  ctrl-p...

ctrl-p  ctrl-p ctrl-p.

Thu, 04/12/2012 - 23:18 | 2340530 JW n FL
JW n FL's picture



Hi HO!

Hi HO!

it's off to print we GO!

Fri, 04/13/2012 - 05:30 | 2340952 Ahwooga
Ahwooga's picture

If we continue the blackadder reference, does that make bernanke the prince regent?

Fri, 04/13/2012 - 10:26 | 2341495 Number 156
Number 156's picture


Bernanke's opening statement during congressional testimony:

Ive got a cunning plan.

Thu, 04/12/2012 - 23:09 | 2340498 narnia
narnia's picture

Tyler, you should revisit that Rickards stock & flow debate last year.

Thu, 04/12/2012 - 23:11 | 2340503 dbomb12
dbomb12's picture

The market junkie needs its fix,but when it goes cold turkey it will drop like a rock

Thu, 04/12/2012 - 23:27 | 2340513 ebworthen
ebworthen's picture

So the cry baby markets want Uncle Ben and Mommy FED to keep feeding them Cotton Candy?

"Gee, look at those little boys and girls go, they have so much energy, it must be that healthy diet."

Yeah, sure, keep the cotton candy flowing; Dentists who do Gold fillings will love you for it.

Thu, 04/12/2012 - 23:17 | 2340524 JW n FL
JW n FL's picture




Thu, 04/12/2012 - 23:19 | 2340533 Yes_Questions
Yes_Questions's picture



How soon before a tampon joke?

Thu, 04/12/2012 - 23:29 | 2340565 ebworthen
ebworthen's picture

The markets need another Kotex and some Midol?

Thu, 04/12/2012 - 23:40 | 2340592 Dingleberry
Dingleberry's picture

"I'm feeling signs of PMS (print more shit) from all this flow talk...."


Thu, 04/12/2012 - 23:53 | 2340626 Yes_Questions
Yes_Questions's picture



Think he's been having that "not so fresh feeling"?


Chuckled, PMS...thanks...

Fri, 04/13/2012 - 00:08 | 2340625 Paul Atreides
Paul Atreides's picture

Not to worry Ben has a MacsiPad

Thu, 04/12/2012 - 23:20 | 2340537 jack stephan
jack stephan's picture

Dean Proffitt: You know what your problem is? You are so goddamn bored, you have to *invent* things to bitch about! You don't have a single thing to do on this earth except for your hair! The closet was fine, you just needed something to fill up your useless, nail-polishing, toe-polishing, rich bitch, sun-tanning days!
[From the engine room, the crew, who have heard all of this, start cheering]\

Happy April zh bitchez!!!!!! Suck it easy

Thu, 04/12/2012 - 23:22 | 2340541 Cult_of_Reason
Cult_of_Reason's picture

All the bulls need to buy stocks is QE3 (“Bernanke put”) hope and "money on the sidelines" excuse.

And if you are Thomas Lee (JPM), all you need is "underperformance of funds" excuse to buy stocks.




Thu, 04/12/2012 - 23:25 | 2340553 chump666
chump666's picture

Excellent ZH

Thu, 04/12/2012 - 23:27 | 2340562 booboo
booboo's picture

ew, "heavy flow" please, not whilst i be eatin my jelly roll

Thu, 04/12/2012 - 23:42 | 2340597 loveyajimbo
loveyajimbo's picture

Are they not buying around 60%+ of all the bonds sold now?  Why is that not considered QE?  What, does Bernanke have a bond fetish?  Just think if that numb-nuts bought gold instead, starting back in the TARP days...

Fri, 04/13/2012 - 01:08 | 2340755 lasvegaspersona
lasvegaspersona's picture

no large entity can buy gold in significant quantity. If they try they will find that the price rises quickly and they will likely get a call from a local American ambassador (or CIA fella). Why do you think China is following the accrual methods they are? (capturing all local production). If they set loose their trillions on the physical market gold would be 50k/oz by morning and they would not have but a ton or fifty....and you know they want gold...

Thu, 04/12/2012 - 23:43 | 2340600 Peak Everything
Peak Everything's picture

As per Steve Keen the acceleration is probably more important than the velocity.

Fri, 04/13/2012 - 00:30 | 2340693 ekm
ekm's picture

Absolutely great post.

I always have asked the question to myself and on Zerohedge: When are the Primary Dealers going to run out of money after buying up anything and everything (check today)?

The post answers the question as far as the structural part is concerned - The flow coming from Insanity (the Fed). As long as Insanity continues the flow, they will buy.

But, what to buy after they buy up every fucking thing, same as in 2008? That's why I avoid the use of the word "market". There isn't any if just the primary dealers are buying until nothing is left to trade.

Fri, 04/13/2012 - 01:09 | 2340754 Sandmann
Sandmann's picture

So Greece has a privately-owned Central Bank which is now so profitable through LTRO that it is paying $100 million Dividend to the Banks that own it. The EU Commission has also permitted $30 million of bailout funds to be used to fund certain Political Parties in the May 6 Election.

Meanwhile Lloyds Bank in the UK has not paid Dividends to Shareholders since 2008 because the EU prohibited it when it received State aid to rescue HBOS.


The Era of Arbitrary Government has well and truly arrived

Fri, 04/13/2012 - 01:10 | 2340756 yogibear
yogibear's picture

The junkie says he needs a stronger dose again to get the same result. It doesn't matter if the junkie dies.




Fri, 04/13/2012 - 01:28 | 2340772 nah
nah's picture

the world will blow up before the banks do

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