Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Of Two Minds (Reporter)
Contributor profile | More stories
Story Views
Now:
Last Hour:
Last 24 Hours:
Total:

The Fed's "Not-QE" and the $33 Trillion Stock Market in Three Charts

% of readers think this story is Fact. Add your two cents.


Oftwominds.com‘s eclectic range of timely topics include finance, economy, stocks, housing, Asia, energy, long-term trends, social issues, urban planning, work/tradecraft, health/diet/fitness, sustainability, Les Paul guitars and The Great Transformation ahead: www.oftwominds.com/blog.html.

One day the stock market ‘falcon’ will no longer hear the Fed ‘falconer’, and the Pavlovian magical thinking will break down as the market goes bidless.
The past decade has shown that when the Federal Reserve creates trillions of dollars out of thin air (QE), U.S. stocks rise accordingly. The correlation is very nearly perfect.
This has given rise to the belief that buyers of stocks will always be rewarded because “the Fed has our backs.” The evidence for this belief is the near-perfect correlation of Fed money-printing and stocks soaring.
This near-universal belief in the omnipotent Fed raises an interesting question: how much actual control does the Fed have on the U.S. stock market? One way to approach this question is to plot the size (to scale) of the Fed’s current money-printing campaign of $60 billion per month, “Not-QE,” to the market cap (total value) of U.S. stocks, using the Wilshire 5000 as the measuring stick and the St. Louis Federal Reserve database (FRED) as the data source.
This first chart shows the Fed’s $60 billion per month “Not-QE” in relation the $33 trillion market value of U.S. stocks.
The nearly invisible thin red line is $60 billion in relation to $33 trillion. So exactly how does this signal-noise sum translate into “the Fed has our backs”?
But wait, you say; it’s not the monthly total that counts, it’s the annual total of Fed money-printing that counts. Your wish is my command: the second chart plots the relative size of $60B X 12 = $720 billion, should the Fed extend “Not-QE” for an entire year, compared to the $33 trillion U.S. stock market.
Hmm, $720 billion isn’t very much compared to the stock market. This raises the same question: how much direct control does the Fed have on U.S. stocks?
Every month there is buying and selling of stocks, in relatively low volumes. If there’s more buying volume than selling volume, we can say there is X buying volume net of selling volume. If there’s more selling volume than buying volume, we can say there is X selling volume net of buying volume.
By way of a thought experiment, let’s say sellers unload 3% of the U.S. stock market market cap, net of buying, in the course of a month. This 3% equals about $1 trillion. Now 3% isn’t that much; a real sell-off could see owners dumping far higher percentages of the stock market’s total valuation.
The third chart plots one month of the Fed’s “Not-QE” ($60 billion) compared to $1 trillion in net selling over one month. Hmm… even when compared to a mere 3% of the stock market’s market value, the Fed’s $60 billion is a popgun, not a bazooka, much less a nuclear detonation.
In claiming “the Fed has our backs,” buyers are claiming that $60 billion in Fed money-printing has essentially total control of a $33 trillion market. Looking at these sums to scale should raise some doubt about the direct control the Fed exerts on the stock market.
What’s actually driving stocks higher is the psychology of buyers anticipating everyone else buying because of Fed money-printing, not the money-printing itself. It’s clear that any sort of even modest selling pressure will completely overwhelm the Fed’s “Not-QE” popgun.
We might productively recall that there is no law requiring the currency the Fed creates to flow into the stock market. The $60 billion might flow into bonds, or commodities, or some other form of financial asset (mortgage backed securities, bat guano derivatives, etc.).
Understood in this fashion–the modest size of “Not-QE” compared to the $33 trillion stock market, and the complete absence of direct Fed control of the stock market–the psychology of buying in anticipation of others buying in a Pavlovian response to Fed money-printing is fundamentally a form of magical thinking that reflects the durability of the Pavlovian reaction, not actual Fed control of the stock market.
The difference between the two will start to matter when a sell-off overwhelms the Fed’s “Not-QE” popgun. Don’t think it won’t happen just because it hasn’t happened yet.
As per Yeats, Turning and turning in the widening gyre, The falcon cannot hear the falconer; one day the stock market ‘falcon’ will no longer hear the Fed ‘falconer’, and the Pavlovian magical thinking will break down as the market goes bidless.

My recent books:

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Gary S. ($20), for your extremely generous contribution to this site– I am greatly honored by your support and readership.
 
Go to my main site at www.oftwominds.com/blog.html for the full posts and archives.



Source: http://charleshughsmith.blogspot.com/2020/01/the-feds-not-qe-and-33-trillion-stock.html



Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com

Order by Phone at 888-809-8385 or online at https://www.herbanomic.com


Get our Free Ebook, "Suppressed Health Secrets"  with  Natural Cures THEY don't want you to know!

Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen! 
Organic Hemp Extract (CBD) - Full Spectrum high CBD (3300mg) hemp extract eases stiff joints, relieves stress and more!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover -  Reduces Smart Meter radiation by 96%!  (See Video)

Immusist Beverage Concentrate - Proprietary blend, formulated to reduce inflammation while hydrating and oxygenating the cells.

Report abuse
Loading...
    Loading...

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.