In Fed We Trust, Fed-Led '08 Meltdown Exposed, It's Setting Up Again

(Picture: To prepare you for the information that you are about to learn we have to quietly and slowly use some psychological methods to ease you into this. We warn you that after reading this it will be difficult to remove these concepts from your investment process. Let us walk you through something incredible that a follower/commenter pushed us on.)

After this work, I am worried that the market is almost solely in the hands of decisions made by the Fed, but not through rates. Yellen holds our financial fate in her hands. Is that the way ("free") markets are supposed to work? We are in incredibly dangerous territory.

We think this has implications for banks, the consumer, investors, the economy and the world.

But we'll give you the facts of what we are looking at and you come to your own conclusion. Let's start.

To start, I want to give an incredible call out to SteveMDFP. He read our work better than we did yesterday.

In our report, Is The Fed Buying Stocks, we showed how the Fed's open market operations and balance sheet was the key driver to stock market moves. In fact, if you look at the correlations of Fed balance sheet changes to S&P 500 (NYSEARCA:SPY) returns, they hauntingly line up almost to a "t."

We'll show it again because it's a great chart. Here you go. Scroll slowly so you see each year's performance versus the "YOY Change" of Fed balance sheet assets.

You can see how the Fed changes in positions almost precisely told you how much the S&P 500 ETF would be up or down.

To this chart, SteveMDFP asked an amazing question. Buckle your seat-belts. He asked,

"I found the shocking number to be the 41% DECREASE in the balance sheet during 2008. My guess is they shrank the money supply with this step to rein in the overheated excesses in real estate financing--but precipitated the 2008 crash.

Of all the finger pointing that's been done about the crash, few have been blaming the Fed for actions in 2008 itself, but maybe they deserve the lion's share of blame for taking this precipitous action."

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Dick Kaplan 4 years ago Member's comment

Excellent article! This truly blew me away. A must read.

Elazar Advisors, LLC 4 years ago Author's comment

thx Dick