Federal Reserve Balance Sheet - A Proxy for US Equity Markets
Note that I am only using the total of their Securities holdings and not the entirety of the data that goes into constructing the overall size of the balance sheet. In other words, I am excluding loans from the Discount Window, swaps and other assets that go into making up the entirety of their available credit. In other words, I am being "conservative". If you take those other factors into account, the size of the balance sheet of the Fed is already over $3 TRILLION!
Even at this, it still provides a
very compelling picture of why US equities continue to plumb new highs
nearly month after month in spite of the anemic at best growth in the
underlying economy.
I maintain that the Fed has
engineered one of the most massive bouts of INFLATION in the STOCK
MARKET since its inception a century ago. Can you see the connection
between the overall size of the Fed's Balance Sheet and the level of the
S&P 500?
This is by design of course since in
our new, modern age of ignorance, these monetary wizards believe that
they can create lasting prosperity by forcing untold amounts of freshly
minted liquidity into stocks jamming those prices higher and thereby
influencing consumer sentiment. A rising stock market provides cover for
all manner of other economic woes, and political woes, I might add. The
low information citizen takes one look over at the DOW or the S&P
500 and then falsely assumes that all is well with the world and then
goes about his or her business without delving any deeper into these
matters. This is of course further propagated by the blind lemmings who
constitute the majority of analysts out there on financial TV who
breathlessly talk about the wonderful rally in stocks heralding the
beginning of solid, sustained economy vitality. Idiots! (Sorry, I could
not help myself on this one).
The opposite is true when stock
prices are collapsing. Consumers begin to move from concern, to worry,
to fear and to outright panic and then most worrisome to the elites,
anger as they look for scapegoats.
As I have stated many times now on
this site, if it was this easy to create prosperity, it would have been
figured out a long, long time ago by previous generations, which unlike
this current one, were actually capable of critical analysis. Let's call
this current Federal Reserve strategy: "PROSPERITY IN A BOTTLE". It is
akin to a cologne for men. Just splash some on and forego the shower for
the time being as the aroma masks the smell from a day's perspiration.
What the Fed has done is to cover up
the stench from the debt overload and rampant speculation its policies
have created in our financial system. The deeply-rooted structural
issues have been left unblemished in their vigor.
Do not forget this one thing - ultra low interest rates benefit TWO GROUPS at the EXPENSE OF SAVERS.
FIRST - the borrower and
SECOND - the large speculator/hedge
fund which borrows money for basically no cost and then LEVERAGES that
money in speculative bets. Where do you think all that liquidity that
the Fed has shoved into the marketplace has gone???? the answer - into
equities!
Lastly, here is one more look at the
level of the S&P 500 seen through the prism of gold. First look at
the S&P in NOMINAL TERMS. Note that the Fed's machinations have
jammed it to within a whisker's breadth of its all time CLOSING HIGH
made back in late 2007 just before the bottom dropped out of the index
and it lost 50% of its value over the next year and a half. "Wonderful,
Superb, Splendid, Impressive" all are adjectives being used to describe
the "recovery" in stock prices.
Now take a look at the same chart
when the price level of the S&P 500 index is compared to the value
of one ounce of gold. Note that "recovery" seen in the nominal index off
the 2009 low doesn't seem like all that much now does it? Translation
from all this - Fed induced RAMPANT INFLATION OF PAPER ASSETS; nothing
more. Traders of course can go with the flow of money into equities as
long as they do not mistake this equity rally as the herald of a new era
of lasting prosperity. When the music finally does stop, and the
players rush to find their chairs, many are going to be left standing
looking for a place to sit and coming up empty.
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