Dow 40,000, SPX 4,000: Is this Fed-Fueled Stock Rally Sustainable?

Since stocks rise when the Fed is adding assets and tank when the Fed pauses…

Now that financial pundits are claiming the current stock market rally is good to go until 2016, it’s appropriate to see where the market will be in 2016 if current trends hold.

Let’s start with the well-known correlation between the Federal Reserve’s balance sheet and the stock market: stocks rise when the Fed is adding assets and tank when the Fed pauses. (Chart courtesy of STA Wealth Management)

Fed-SPX11-13

Courtesy of Market Daily Briefing, let’s look a little closer at the Fed’s ballooning holdings of home mortgages (MBS) and Treasury bonds, and extend those trends into the future:

 

usfed-detail12-13a

By mid-2016, the Fed will have nearly doubled its Treasury bonds from $2.16 trillion to over $3.5 trillion, and its mortgage holdings will double from $1.44 trillion to $3 trillion. This would represent about a third of total mortgages outstanding.

Here is the Fed’s aggregated balance sheet, with the start of each quantitative easing (QE) program indicated:

usfed-sum12-13a

Grab a ruler and pencil and extend this trendline–you reach about the same target of Fed assets $6.5 – $7 trillion by 2016:

Fed-assets12-13

If the S&P 500 (SPX) continues higher in lockstep with the Fed’s expanding balance sheet:

SP500-12-13a

Is that SPX 4,000 in 2016, or is it SPX 5,000? The upward trendline is so steep it’s hard to project.

Is this uptrend sustainable? You’re kidding, right? Don’t fight the Fed, Baby–it’s Dow 40,000 or 50,000/SPX 4,000 or 5,000 by 2016, guaranteed.

Please note this is sarcasm, not a forecast.

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5 comments on “Dow 40,000, SPX 4,000: Is this Fed-Fueled Stock Rally Sustainable?
  1. Snorky says:

    If it was good enough for the Weimar Republic, then it is good enough for us!

  2. Robespierre says:

    USA is a cancer. This fuckin country is a parasite.

  3. Robespierre says:

    And parasites eventually kill the victim and then die. Woudl be a fuckin good thing for these american pigs.

  4. R. Freiherr v. Wackendonk says:

    Fuck yeah its sustainable, Chuck. Right to DOW 4.2 trillion! When QE goes apeshit at $400 billion a month, you’ll see a DOW go vertical and never stop.

    Here on main street, we’ve got a hyperinflationary blowout all set to burst, the moment those banks pull their trillions the hell out of the Fed and plough em right into commodities.

    Deflationists can talk all they want. They’re right about a black hole of debt that swallows all daylight. But if they think this hyperinflation’s going to circle the bowl into hell without first raping every single standing consumer beforehand, they got another thing coming.

    Its fucking 1923, sons. But we got no beerhalls to putsch about in.

  5. Hondo Stalwart says:

    Grandiose delusion.

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