) -- The first half of the trading year ended on Friday. Table 1 shows the index returns of the world's major equity markets.



was by far and away the first half winner despite that country's 25-year struggle with economic stagnation. Yet, don't let that 33% market index return fool you -- just over a month ago that index return was more than 50%.

Another noteworthy observation is that the equity markets in the BRIC countries (Brazil, Russia, India and China), still among the fastest growing, were among the worst first half performers.

Courtesy of International Monetary Fund

Clearly, the Graham and Dodd approach to equity investing isn't working. Both Jeffrey Gundlach (Doubleline) and David Rosenberg (Gluskin Sheff) have found an 87% correlation between the

Federal Reserve's

balance sheet and the

S&P 500

since the first quantitative easing.

On June 24, the Bank For International Settlements published a note on central bank balance sheets. Since 2007, the BIS, said the world's major central banks have, in the aggregate, grown those balance sheets 133%.

Using the ratio of the central bank balance sheet level/GDP as a measure, the BIS said that big changes occurred at the Bank of Japan, the Fed, the Bank of England and the European Central Bank.

But the biggest change occurred at the Swiss National Bank. Table 2 shows the change in the balance sheet/GDP ratio since 2007 for selected central banks and economic areas.

Courtesy of the Bank For International Settlements

It is noteworthy that the central banks in China and emerging Asia (including Indonesia, the Philippines, Taiwan, India, Singapore, Korea...) grew their balance sheets faster than their GDP prior to 2007, but not since, and that other emerging nations (including Central and South America, Mexico, Eastern Europe, Russia, South Africa, Turkey ...) grew their balance sheet ratios only marginally.

So, now Table 1 makes sense. Throughout the world, equity market performance for the high return group is entirely due to central bank balance sheet expansion. Negative equity market performance occurred in countries with no central bank expansion. Perhaps fundamentals and a deteriorating worldwide outlook played a role in those markets!

In its June 24 publication, the BIS warned that the "world's big central banks ... will need to strike the right balance between the risks of exiting prematurely and the risks associated with delaying exit further." This implies that the central banks can figure out what that balance might be.

The fact is, the policies are experimental and have no precedent. The Fed and other central banks are in unchartered waters and may not have a clue regarding the "right balance." The possibility of a "right balance" may not even exist, and, even if it did, can we really expect them to get it "right" on the first try?

The Nikkei was ravaged in May and June, and there was a "Taper Tantrum" in the U.S. -- in both cases at just the thought that, at the margin, there would be less money printing. Volatility looks like it will be with us for a long while.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Barone is a partner, economist and portfolio manager at

Universal Value Advisors

, an investment advisory firm in Reno, NV.

He previously held positions as an economist for Cleveland Trust Company and as professor of finance at the University of Nevada. During his tenure at Comstock Bancorp in 1996 he became a Director of the Federal Home Loan Bank of San Francisco, serving as its Chair in 2004.

Barone also served as Director of AAA of Northern California, Nevada and Utah and a Director of its associated insurance company. He currently serves on AAA's Finance and Investment Committee. Along with his son Joshua, he founded Adagio Trust Company in 2000. Barone received a Ph.D. in Economics from Georgetown University.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.