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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Amish Hacker's picture

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

Mr Lennon Hendrix's picture

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

vast-dom's picture

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

Manthong's picture

Kind of like the movie “Speed”..

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

The Big Ching-aso's picture



I think this market period is going through benopause.

bulldung's picture

Benopause, great term Big Ching

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


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.

mick_richfield's picture

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

I am casting my vote for the next one.


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....

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...

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.

Dr. Engali's picture

Pay no attention to that man behind the curtain.

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.

The Big Ching-aso's picture



He's probably just suffering from some prebenstrual stress.

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.

Mr Lennon Hendrix's picture

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

DoChenRollingBearing's picture

Guilty as charged!  I can't help it!

TruthInSunshine's picture

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

Mr Lennon Hendrix's picture

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

infiniti's picture

They've created a monster


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.

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.

Oh-Globits's picture

the FAILURE is already "baked" in...

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."

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.

JW n FL's picture



Hi HO!

Hi HO!

it's off to print we GO!

Ahwooga's picture

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

Number 156's picture


Bernanke's opening statement during congressional testimony:

Ive got a cunning plan.

narnia's picture

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

dbomb12's picture

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

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.

JW n FL's picture




Yes_Questions's picture



How soon before a tampon joke?

ebworthen's picture

The markets need another Kotex and some Midol?

Dingleberry's picture

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


Yes_Questions's picture



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


Chuckled, PMS...thanks...

Paul Atreides's picture

Not to worry Ben has a MacsiPad

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

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.




booboo's picture

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

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...

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...

Peak Everything's picture

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

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.

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

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.




nah's picture

the world will blow up before the banks do