"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, October 18, 2014

S&P 500 Performance Compared to Federal Reserve Balance Sheet

A couple of charts for your weekend reading.

The first compares the S&P 500 to the overall size of the Fed's Balance Sheet.

The next compares the overall rate of growth of that same Balance Sheet on an annualized basis. Note that slowdown in the RATE OF INCREASE in the Fed's Balance Sheet.

This is important to note - the Fed's balance sheet is still expanding, albeit at a declining rate of growth over a 52 week look-back period.

The Fed, of course, threw the markets are curve ball last week when their minutes announced that the "disinflationary impact" of the strong US Dollar was forcing them to revisit their previous plan of hiking interest rates. Essentially the stronger Dollar has been working at cross purposes to the Fed's goal ( a goal that of the rest of the Western Central Banks also share I might add ) of inducing a 2% annual rate of inflation.

The markets readjusted to that new information by effectively stalling the sharp climb in the greenback. The Dollar chart has not however turned bearish - rather it has merely halted the uptrend for a while.

Traders and investors are going to continue closely monitoring economic data releases, especially the payrolls, to see if there is enough strength to allow the Fed to move back towards a mid 2015 hike or if the data is simply too weak. Right now no where knows for sure thus the most likely path of many markets is one of consolidation or sideways trading. Uncertainty has been injected once more by the Monetary Masters.

The easy money might be over in some of these markets for the time being as trendless markets have a nasty habit of whipsawing traders mercilessly. Lots of hedge funds can and will be chopped to shreds in such an environment because their computers are too damned dumb to trade ranging markets. They are great at making their owners look like geniuses when a strong trend is underway; when the trend dies or halts and the markets take on more of an aimless or bouncing behavior, they cannot trade them. Many will go the sidelines understanding the limitations of their mindless machines.

Trading range bound markets requires real skill, and real finesse in accurately reading a market - as just the time the computers get all bulled up, the market reverses on them. Same thing goes in reverse when the markets look most vulnerable to dropping lower - they reverse higher leaving everyone who sold them having sold into a hole.

Traders - tread lightly out there and do not be reckless right now.