The Only Chart That Matters

Explaining the current stock market in traditional economic terms seems as quaint as dial-up internet. In this era of Modern Monetary Policy and helicopter money, a concept like valuation is mere abstraction. Game Stop and SPAC’s represent the new zeitgeist, so take your Graham & Dodd, take your dividend discount model, and especially take your efficient market trope to a more discerning planet. There is only one thing mattering now, which is the same only thing mattering since 2009, and it’s shown on the chart below.

Ties between the stock market and the economy have always been tenuous anyway. There is no magic growth level that assures a market outcome. Markets look forward, economic stats backward. The stock market is NOT the economy, period.

Instead, think of the stock market as a complex adaptive system driven by perhaps thousands of creative forces. It’s a discomfiting reality in which good is bad, happy is sad, last is first, and best is worst. What narrative can possibly explain the millions of supply/demand interactions on any given day? Financial media is a false prophet.

Since 2009 stocks have gone parabolic on a morphine drip of newly created money. Trillions upon trillions in any currency you can think of was prescribed.

The chart shows total assets held by the US Federal Reserve Bank. The Fed’s holdings are mostly Treasury securities that underwrite the vast obligations of Bailout Nation. The Treasury borrows money by issuing securities, and The Fed promptly buys them up. Sweet deal.

The tight fit between the growth of The Fed’s balance sheet and the growth of the stock market is plain as day. It’s what makes this the only chart that matters.