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The Only Chart That Matters
With charts, if the conclusion isn’t immediately obvious I start to worry. I love Tom McClellan’s charts. This is a good one.
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“There are a lot of different indicators and studies that technical analysts use, and all of those tools came into usage due to some degree of merit. But the one factor which seems to be trumping everything else lately is what the Fed is doing with its QEternity program, which shows no sign of stopping anytime soon, or maybe ever.
This week’s chart compares the SP500 to the total assets held by the Fed. That plot is made up from the total of the Fed’s Treasury holdings and its mortgage backed securities (MBS), which are sometimes referred to as “agency” debt products. The agencies which that title refers to are Fannie Mae, Freddie Mac, etc.
Putting the chart together this way helps us see just how important the Fed’s purchases have been to the task of sustaining the bull market for stocks. Whenever the Fed has decided to change the slope of the green line, the slope of the SP500 has also changed in a dramatic way. That makes it such an important question to contemplate a “tapering” off in the rate of growth of Fed assets, or even an outright end to quantitative easing (QE).”
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