The Magic Number Is Revealed: It Costs Central Banks $200 Billion Per Quarter To Avoid A Market Crash

By Tyler Durden, ZeroHedge

We have all seen it countless times before: visual confirmation that without the Fed’s (and all other central banks’) liquidity pump, the S&P would be about 70% lower than were it is now.

Most recently, this was shown last Friday in “Another Reminder How Addicted Markets Still Are To Liquidity” in which Deutsche bank’s Jim Reid said:

The recovery from the lows after Bullard spoke yesterday is another reminder how addicted markets still are to liquidity. Indeed in today’s pdf we reprint and update a table from our 2014 Outlook showing the various phases of the Fed’s balance sheet expansion and pausing over the last 5-6 years and its impact on equities and credit. We have found that the relationship broadly works best with markets pricing in the Fed balance sheet move just under 3 months in advance. We’ve also included our oft-used chart of the Fed balance sheet vs the S&P 500 to help demonstrate this. So end July / early August 2014 was always the time that this relationship suggested markets should enter a new more difficult phase. So we still think central bankers hold the key to markets going forward and there seems to be a hint of change in the Fed.
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Another view was shown over the weekend, in “The Chart That Explains Why Fed’s Bullard Wants To Restart The QE Flow” which shows that when the Fed’s excess reserve firehose is turned on Max, stocks surge; when it isn’t – as has been the case recently – they tumble.
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So now that “best Keynesian practices” are out of the window, and everyone has once again turned Austrian, and only the “flow of money” (either inside or outside) matters, the question is how much do central banks need to inject to keep the stock market from crashing, let alone continuing to levitate. Luckily, Citi’s Matt King has just done the math, and the answer is…

Here is his answer:

We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices. Figure 5 shows the rolling 3m combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3m change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years (Figure 6 shows the same series plotted against global equities).
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In case anyone missed it, and in case there is still any debate about this issue which we first explicitly stated nearly 6 years ago and were widely mocked by the all too serious intelligentsia, here is the key sentence again:

 “it’s the liquidity injections, not fundamentals, which we would argue has been the major driver of markets for the past few years.

And with that piece of New Normal trivia behind us, we continue:

For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities.
Put differently, it takes around $200bn per quarter just to keep markets from selling off.
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If anyone ever needed any confirmation of what we said in June 2012, that “The Stock Is Dead, Long-Live The Flow: Perpetual QE Has Arrived“, now you have it, and only qualified but quantified. Because to translate what Matt King – Citi’s most respected strategist and the only person on Wall Street to warn about the Lehman collapse and its consequences before it happened, just said – if and when the global central bank liquidity tracker ever drops to $200 billion per quarter or less, the market will crash.
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Russia Wants Regular, Transparent Reports on MH17 Crash Probe

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Parts of wreckage are seen at the site where the downed Malaysian Boeing 777 flight MH17 crashed

MOSCOW, August 23 (RIA Novosti) – Moscow wants the investigation into the crash of a Malaysian Boeing 777 to be as most transparent as possible, and insists on regular provision if prove reports in accordance with the UN Security Council resolution, a diplomatic source told RIA Novosti.

“Investigation into the reasons of the catastrophe should be carried out under international control, should be all-encompassing and transparent for the wide international audience and mass media,” the source said. “We will keep pressing for it, demanding the implementation of the UNSC resolution 2166 which stipulates monthly reports about the course of the investigation.”

Resolution 2166 adopted by the UN Security Council in July calls for a thorough and impartial investigation into the MH17 tragedy and requires the secretary-general to provide the Security Council with investigation progress reports.

The source stressed that the majority of Western media “seem to have been ordered to avoid the investigation issue for about two weeks.”

“US official representatives who rushed to accuse Russia and Donetsk self-defense forces in the first hours following the tragedy, also maintain silence. America’s allies, particularly the British and the Australian, who were also among the first accusers, stick to the same policy. The international community has not yet seen the promised “incontestable evidence.” The explanation is that the truth could be inconvenient to Washington, London and Canberra,” the source told RIA Novosti.

The source added that Kiev’s official position is also telling.

“As the curtain of allegations is clearing, the specialists have more and more questions over the actions of the Ukrainian authorities and military toward the Boeing. Kiev still has not made public the recordings of the talks between air traffic control and the crew, which would allow to understand why the plane was in the combat area,” the diplomatic source said.

Malaysia Airlines flight MH17 was shot down over eastern Ukraine on July 17 en route from Amsterdam to Kuala Lumpur, killing all 298 people on board, including 193 Dutch nationals, 43 Malaysians and 27 Australians.

MH17: Boeing-777 was downed by Ukrainian MiG-29, Romanian expert says

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Ukrainian MIG-29

By Lyuba Lulko, Pravda, The milleniumreport

Romanian military expert, pilot and former deputy commander of Otopeni military airport, Valentin Vasilescu, presented his version of the tragedy of the Malaysian Boeing in the sky over Ukraine. According to the expert, the plane was shot down by Ukrainian MiG-29, possibly piloted by Polish pilot.

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Wreckage of B777 FLIGHT MH17 TAIL NUMBER 9M-MRD

Valentin Vasilescu refutes the theory, according to which the plane had been shot down by surface-to-air missile, which, according to American and Ukrainian versions, the militia launched from Buk-1M mobile unit.

“A surface-to-air missile, with a warhead weighing from 40 to 70 kilos, explodes not inside the object of destruction, but near it, at a distance of 50-100 meters. The detonation of the warhead produces a shock wave that disperses fragments with high velocities. They can puncture the fuselage of an aircraft, but given the size of the Boeing-777 (73 meters long, with a large wingspan), they can not lead to the destruction of the aircraft in separate smaller parts, as it happens with the aircraft that are 7-10 times smaller. Such fragments, when hitting a Boeing-777, can rupture the fuel system of the aircraft. The fuel can spread on the fuselage and wings, setting the whole plane on fire,” said the expert.

“Similarly, if the hydraulic system had been damaged, the Boeing 777 would have lost control of the flight. Thus, if such a large aircraft like Boeing-777 of Malaysia Airlines had been hit by surface-to-air missile, the crew would have been able to warn traffic control services of the situation on board. But we do not see anything like that in registers,” Valentin Vasilescu said.

The plane, as shown by black boxes, collapsed in the air, but this is only possible in case of a horizontal nosedive from the height of ten thousand feet, when the maximum speed limit is exceeded. “If the plane spins, the crew is very often unable to control the aircraft. Instantaneous depressurization of the cockpit may also occur,” the expert said.

Douglas Barrie, a researcher of the International Institute for Strategic Studies, said that the edges of a fragment of the cockpit fuselage on the right side were bent from the inside to the outside. This indicates an explosion that occurred inside the plane, which is impossible if the Boeing MH-17 had been shot down by missile equipped with a proximity fuse.

The plane could not be shot down by Buk-M1 as there was no electromagnetic radiation from the missile complex registered. There was no thick plume or white condensation of 10-35 kilometers from the earth, which appears and lasts for several minutes after launch.

The expert notes that he is not alone in his opinion. For example, Gordon Duff, a veteran of the Vietnam War, currently a security consultant, believes that the Malaysian Boeing could not be shot down by surface-to-air or air-to-air missile. According to him, it was either a bomb explosion on board, or “a gun of a Ukrainian fighter jet.” “It was a diabolical brain that planned the attack, as flight MH-17 was shot down from an onboard gun. The gun left traces that make one believe that it was a small bomb that exploded inside,” he said. Canadian expert Michael Bociurkiw wrote in his report that part of the aircraft fuselage was dotted with “shrapnel-like, almost machine gun-like holes.” He said the damage was inspected by Malaysian aviation-security officials. Bociurkiw believes that Boeing MH-17 was shot down from small arms or artillery weapons of a fighter aircraft that had a high fire rate.

The expert referred to the report from BBC correspondent Olga Ivzina from July 23, 2014, which was later censored by the company management. The report provided testimony from residents of the Donetsk region, who confirmed the presence of another aircraft in the sky over the area, where  the catastrophe occurred.


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