BofA: $2 Trillion YTD In Central Bank Liquidity Is Why Stocks Are At Record Highs

One week ago, in his weekly "flow report", BofA's Michael Hartnett looked at the "Disconnect Myth" between rising stocks and sliding yields and succinctly said that there is "no disconnect between stocks & bonds."

Why? The reason for low yields and high stocks was simple: trillions in central bank intervention. The result is an era of lower yields & higher stocks, or as the chart above shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:

  • 1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns;
  • 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return;
  • 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%.

Fast forward to today, when in the interim period stocks have continued to rise, hitting new all time highs in both the US and globally, oblivious of any news and fundamental developments - as one would expect from a massive asset price bubble, and in line with what Hartnett has dubbed a Liquidity Supernova.

Here is Hartnett's math, and the explicit - and quite familiar- reason why both stocks and bonds continue to rise:

Liquidity Supernova: central bank liquidity up $2.0tn YTD to $15.6tn = the catalyst for $7.0tn YTD jump in global equity market cap + lower bond yields; Fed likely announces balance sheet reduction at FOMC 9/20 (Chart 1); downtrend in Fed liquidity + ECB taper remain necessary conditions for correction.

How long will Hartnett's trademarked "Icarus Rally" continue? A little over 100 more S&P points according to the BofA strategist:

Icarus targets: we see SPX 2630, CCMP 6666, ACWI 510; we are long stocks, commodities, volatility, short bonds; we recommend barbell of uber-growth (IBOTZ, DJECOM) & uber-value (GDX, BKX) precedes peak; we think US dollar & China/Japan banks good contrarian autumn plays on global GDP upgrades.

As a reminder, it was Hartnett who two months ago, said that "The Most Dangerous Moment For Markets Will Come In 3 Or 4 Months." If he is right, that would make the moment 1-2 months away.

* * *

Finally, here are BofA's observations on the latest weekly fund flows:

Weekly flows:

  1. biggest US equity inflows in 13 weeks ($1.9bn) which coincides with FMS showing largest US UW since 2007,
  2. more inflows to equity ETFs ($304bn YTD), outflows from mutual funds ($85bn YTD),
  3. Largest Japan inflows in 44 weeks ($3.5bn),
  4. largest inflows to US small caps in 6 weeks ($1.2bn) on tax reform optimism,
  5. largest inflows to US Treasury funds in 62 weeks ($2.2bn) despite tax reform optimism but in keeping with quest for yield (note Austria joining Ireland, Belgium, Argentina, Mexico in issuing a 100-year bond).

2017 Champions League flows: YTD flow winners are EM debt (17% of AUM), financials (14%), tech (13%); bottom 3 are real estate (2%), health care (1%) & US stocks (0.1%).

2017 Champions League returns: Table 3 shows top 3 annualized YTD total return winners are tech (47%), EM equity (45%), healthcare (30%); bottom 3 are US dollar (-13%), energy (-4%), TIPS (4%)… outperformance of "deflation" vs "inflation".


assistedliving (not verified) Fri, 09/15/2017 - 14:06 Permalink

refreshing when its NOT ZH doom porn right?CB alt print; what we been saying all along

Lizardking Fri, 09/15/2017 - 14:07 Permalink

Can you imagine the slow death of many investors when the fed starts to slowly pull out while at the same time increasing volatility to bring new speculative money in. Once the volatility increases on a consistent basis you know the trend will soon be lower lows. Getting closer but investors will be spoon fed an oppruntinity to get out unlike 2009.

Quivering Lip Fri, 09/15/2017 - 14:15 Permalink

BofA: $2 Trillion YTD In Central Bank Liquidity Is Why Stocks Are At Record HighsNo shit Mike. Thanks for the insight.Centralized Confiscation and Consolidation through Counterfeiting.

Thebighouse Fri, 09/15/2017 - 14:19 Permalink

I always feel so stupid to think that "this" might be a top.  When you understand that the printers are the buyers.   They have bought it all.When do they sell is the question.  Why would they? is perhaps even more important.Government owned enterprises.Really really really weird times.

buzzsaw99 Fri, 09/15/2017 - 14:23 Permalink

there are two Chart 1s. lulz.  the second Chart 1 is bullshit.  You can't just look at the fed, the other CBs are doing the heavy lifting lately.  zh often shows a similar chart using world central bank buying and the correlation is perfect.

Maestro Maestro Fri, 09/15/2017 - 14:42 Permalink

The rich and powerful are waging a pitiless war against the rest of humanity.

The BRIC countries are only part of the problem and not the solution.

The BRICs are all IMF member countries and are thus forbidden to monetize gold, or link their currencies to gold, or use gold as a trading or exchange mechanism:……

India recently collaborated with Western bankers and following the West's instructions, temporarily destroyed the purchasing power of its own Indian population by demonetizing physical cash, under the guise of eliminating tax evasion and cash-only criminal activity. This has had the effect of crashing the gold price by temporarily removing the Indians from the gold market, exactly when the Trump inauguration lit a fire under the gold price.

The Russians never abstained from using dollars even at the time of the communist USSR! If they did not demand gold for their oil during the Cold War, why would the Russians do it now when the Russian central bank is owned and controlled by the City of London banking establishment since the creation of the new Russian Constitution under Yeltsin? The Russians are forbidden to issue their own currency the Ruble without permission from Western bankers and the Russians can only buy US Treasuries with the dollars they get for their oil, not gold. There are more dollar assets than Rubles in Russia:…

The gold price would have skyrocketed if the Russians and the Chinese were buying gold hand over fist as alleged. Why do you think that Western bankers would give gold away at or below cost to their purported enemies?

Unless they were not enemies in reality, and just partners playing good cop, bad cop for the purposes of fooling and manipulating their unsuspecting respective populations?

Why do the Russians never ask the Americans to leave Syria where the Americans are illegal invaders under international law? Why did the Russians never prevent the Israelis from attacking their allies the Syrians?

The Shanghai Gold Exchange is a fraud designed to legitimize the fraudulent COMEX "discovered" gold price. Goldman Sachs and JPM never could have manipulated the gold and silver prices lower without active Chinese collaboration. That the Shanghai Gold Exchange is a physical only market is a LIE:…

The Chinese government defrauded and stole from their own Chinese citizens by encouraging them to buy gold at the top. The Chinese bankers then colluded with JPM and Goldman Sachs to crash the gold and silver prices. Large amounts of physical silver were leased out and sold into the physical markets by the Chinese authorities as well:…

Do not forget: It's the international ruling classes against the common folk. That's the real meaning of globalism.

Disgruntled Goat Fri, 09/15/2017 - 14:55 Permalink

"Liquidity"..... call it what the fuck it is! Overt buying of equities and debt, financed buy overt printing of money. Massive market intervention and manipulation so favored entities and their politically connected leaders don't lose money. Meanwhile, 30% of issued sovereign debt sports a negative interest rate, but this is looked upon as a normal occurance, barely if ever mentioned in the MSM. Real retail savings interest rates are less than zero.The SNB prints billions in CHF then sells them into the market to maintain the ridiculous peg to the EUR, then turns around and buys equities with the excess foreign exchange currencies. Japan overtly buys JGBs and equities. Liquidity? Thats a sick joke.

Clowns on Acid Fri, 09/15/2017 - 16:07 Permalink

Oh...look...the 100% gain in equities since 2008 has been the product of immoral money printing by the US Fed, and copied by all other CBs.It took BoA this long to figure this out? Or are they (and Jamie Dimon) now just trying to cover their arse as more and more "little" people figure out the UnConstitutionality and indeed criminality of printing money out of thin air?It made the Banks $ trillions (Jamie ...only $200 to 300MM), but screwed 99% of the US population. Winter is coming... 

JailBanksters Fri, 09/15/2017 - 20:35 Permalink

And all this time I thought they were just Stocks they don't own, bought with money they don't have, loaned it into existance from the Central Bank that the Central Bank just conjured up out of thin air. And if the Bank can't sell it for more than they paid for it, the Central Bank will conjur up some more money out of thin air and buy it back from them.