Nice chart from Trader Dan Norcini

I first heard about Trader Dan from Jim Sinclair's blog.  To be honest, I don't anything about his track record, only that Jim Sinclair, who I believe to be an honest person, has confidence in Trader Dan.  Not that anyone else should have confidence in Trader Dan, simply that this is all I know about him.

In any case, he has a good chart on his blog today which I have pasted below.  It seems to show a clear relationship between fed balance sheet expansion and share price expansion of the S+P500.  It also shows now that fed balance sheet expansion is topping.  The markets, being forward looking seem to be anticipating a fed balance sheet drawdown and I do believe that is what we will soon begin to see: Interest rates will jump into a 3rd wave up because the fed will begin adding to the existing supply of treasuries as it tries to deleverage itself without anyone knowing.  Trust me, this is not going to work out well for them.

A choice must be made right now: sacrifice the central bank by continuing to expand its balance sheet with overpriced assets in order to prop up the prices of said assets or sacrifice the stock market and the economy by deleveraging.  The central bank will want to live to play the game another day.  So I suspect it will begin to fight with congress over its deleveraging operations because stocks and bonds will both be falling as a result.

At some point, probably in 2017, congress will kick the central bankers out with an audit, decry them as thieves (to rounds of clapping by the people) only for congress to prove itself the bigger thief as it begins massive inflation in order to buy votes.   The fed is corrupt for sure but there are relatively few palms to grease and they understand the concept of carving a steak out of the cow for dinner and then giving him time to heal before getting another one.  In other words, the fed understands the need for sustainable parasitism.  Congress will lack this discipline.  There are too many corrupt palms to grease and all of the members will take the stance that if they don't get their share, someone else will take it anyway.  It is only after congress wrests control of the money supply from the fed that I fear hyperinflation will be the new trend.  Until then we have deflation as the fed deleverages.