"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, February 9, 2013

Federal Reserve Balance Sheet - A Proxy for US Equity Markets

If there are still any skeptics left out there who DO NOT BELIEVE that the entire stock market rally from its low made back in late 2008, has been engineered by the Federal Reserve, then please examine the following chart I have constructed using the data from the Fed's own site which provides a weekly glimpse into their balance sheet.

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.


  1. Maybe they bought some on the open market to keep the price up?

    CIGA Frank Saubier

  2. Thanks Dan, that was one of your best ever.

  3. I don't think there are any chairs left.

    They all got burnt in the fire.

  4. Agree! Thing is TD, this game could go on for a long time!

  5. This video is a bit off subject but I think it is well worth placing it here.

    All Wars are Banker’s Wars focuses on how privately-owned Central Banks and their mega-wealthy private owners use war to force countries to adopt their dishonest monetary system so these families can thieve those countries’ natural resources and honest labor, “paying” for it with worthless pieces of paper called fiat money. Recent Bankster Wars include the Iraq War (Saddam wanted to sell Iraqi oil for Euros, cutting out the US Dollar) and the Libyan Invasion (Gaddafi wanted to establish the gold dinar as the foundation for all currency on the African continent and he wanted payment in gold for Libyan oil). This video discusses how the bankers were behind the War of 1812, the American Civil War, and both World Wars.


    All Wars Are Bankers' Wars


  6. Bernanke has created the impossible.

    Rampant inflation in paper assets by pointing the Infinite Fiat Firehose at consumer stocks, U.S. Bonds, and municipal bonds.

    Yet at the same time, we enjoy sub 2.0% on the 10-year for a world record 7 consecutive months, and the CRB Index remains checked and collared.

    Ratio Traders continue to ransack the GDX while investors in the Nasdaq 100 "Glam" stocks like AMZN, GOOG, PCLN are luxuriating in 7 bagger gains since 2009.

    And it is all carefully controlled by the mouthpieces of Bernanke, Draghi, and Uncle Abe, who now only have to utter "words" to get the associated markets moving in the required direction to reach economic nirvana.

  7. AMZN from 60 to 270 "4.5 bagger"
    Goog from 300 to 800 "2.5 bagger"
    PCLN from 75 to 700 "7 bagger"

    Handpicking some big gainers with 20/20 hindsight to "back-up" your view point seems disingenuous at best Mark... propagandist at worst. Counterpoint:

    NGD from 1.40 to 10 "7 bagger"
    EXK from 1.07 to 6.70 "6 bagger"
    SLW from 6 to 37 "6 bagger"

    As two evenly weighted portfolios, I'd take mine over yours any day buddy. Now go grab another "made in April" screen name and argue with me, lol.

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