Liquidity Is Grease For The Wheels In Equities

Liquidity, also known as quantitative easing (QE), is grease for the wheel to higher nominal stock prices.

NYSE Composite and Internal Force


The Fed is hinting about ending QE in June 2011. As the old saying goes, talk is cheap. QE, announced, unannounced, domestic or international, can assume many forms. The Fed knows that terminating QE within a fragile economic back drop of contracting credit and unstable debt will generate headline ‘consequences’ that will extend well beyond lower nominal stock prices.

Higher nominal stock prices does not always equate to economic recovery. There’s a difference between nominal and real trends, but it’s easy to ignore them within endless headlines of one-dimensional analysis.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to Gold Ratio and Z Scores from Primary Trend: