Personally, I look at dozens of charts everyday. Some are incredibly valuable while others are less so. Above is a chart that I believe is one of the most important, if not THE most important, in the world right now! It is the chart of Total Assets on the Federal Reserve’s balance sheet. In other words, the cumulative, market-inflating, war chest of easy money built up during multiple rounds of Quantitative Easing (QE). This mountain of money topped out at around US$4.5 trillion in 2015, held fairly steady in 2016 and most of 2017 to help inflate asset prices all over the world and is now dropping as part of the Fed’s unwinding process or Quantitative Tightening (QT). The most recent reading of US$4.2 trillion is down US$300 billion from its peak and the rate of decline is accelerating.
The above chart shows how the flush of liquidity from Fed, ECB (European Central Bank) and BOJ (Bank of Japan) has propped up the U.S. stock market since the 2008 Global Financial Crisis, which for this case is S&P 500.
ECB and BOJ haven’t started winding down like the Fed. But the rate at which they are buying assets IS slowing. And almost every central bank has announced plans to stop completely later on. Since bonds eventually mature, that will mean the cumulative ocean of liquidity on which assets are floating will start DRYING UP.
The turning up of credit cycle is also signalling that loan defaults and delinquencies are beginning to rise again.
All the above coupled with the fact we are very late in the economic expansion and falling emerging-market currencies, stocks and bonds seems to point to the end of this 9-year aging bull market. HOWEVER, I believe Donald Trump's tax reformation will continue to improve companies' earnings and sales growth and flight of fear capital from Europe and Japan because of SOVEREIGN DEBT CRISIS (SDC) into U.S. will ensure that this bull market will still go on probably for another 1-2 years. But no doubt, this is definitely the LAST LEG of the U.S. bull market and I still maintain my view that Dow Jones will hit 30,000 and more before the bear market finally arrive.