Day after day, CNBC’s Rick Santelli hears analysts arguing how the economy is doing pretty well and that there is always some anecdotal fact that backs up their cognitively dissonant view with fundamentals. However, as Santelli asks (rhetorically), it always comes back to the same question, “if things are really that good, why do we still need the [Fed] training wheels on?” The answer is presumably obvious as actions ($85bn per month of POMO-provided liquidity to the 21 primary dealers) speak louder than analysts words (we promise recovery is just around the next corner.)
While careful not to explicitly rebuff the exuberance of his channel’s clients revenue-base, Santelli notes the oddly correlated relationship (that has time and again appeared in pixelated format on these very pages) between the Federal Reserve balance sheet and the ebbs and flows of the US equity market.
As he concludes, the only (causal) transmission mechanism for the Fed’s actions is via the primary dealers and implicitly the Fed is the entity that is goosing the stock market.
So what are the real underpinnings of the US equity market?
We leave it to Rick…