CHART OF THE DAY: Here's Why Stocks Can Still Head Up

Stocks making new highs, Alan Greenspan saying stocks are cheap and Richard Koo suggesting that thre is no way the Fed is going to be able to get out of this QE trap. These are the inspiration for me to share today’s charts of the day from my database.

These were first built for me by one of my team a few years back when the Fed first started using their balance sheet to prop up the economy and the stock market.

It is clear what is driving stocks and it is clear that on the couple of occasions when the Fed has stopped injecting cash into the market – at the end of QE1 and QE2 – stocks fell. At least, materially:

Long Term view of the Fed’s balance sheet and stocks

Here is the GFC and post-GFC period:

A zoomed in view

While the Fed is injecting cash, it seems stocks in the US and beyond are headed higher. The second actually suggests that they are underperforming.

Maybe Greenspan is right.

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