Global M2 Set to ResurgeGlobal money printers are starting to rev up.
After a brief hiatus, it won't be long before U.S., Europe, and Japanese M2 charts new highs again. Are you ready for a new liquidity cycle?
USM2 trade ideas
Positive Rate of Change M2 in a Fed cutting period = GOLD higher
A Positive Rate of Change in M2 during a Fed cutting period = GOLD higher.
$M2 money printer is about to go brrrM2 money supply could see an increase in the near future due to several key factors. Central banks may adjust monetary policies to inject more liquidity into the economy, while new fiscal stimulus measures could further boost M2. Additionally, rising consumer and business spending might drive up the demand for money. Inflation concerns could also lead central banks to expand M2 to stabilize prices. Keep an eye on these developments as they unfold.
Money Supply since 2018 increased 7TInflation is caused by the printing of dollars out of nothing, things don't cost more, the dollar is worth less.
A Possible Recession Coming: What to Invest in During DifficultChart Analysis:
The chart depicts the relationship between the M2 money supply, US Consumer Price Index (CPI), labor market trends, and historical recessions. Key observations include:
Recessions:
-Historical recessions are marked and correlated with significant economic downturns.
-Each recession coincides with substantial drops in the labor market and fluctuations in the M2 money supply and CPI.
M2 Money Supply and US CPI:
-The M2 money supply (blue line) shows a steady increase over the years, reflecting ongoing monetary expansion.
-The US CPI (orange line) follows a similar upward trend, indicating rising consumer prices and inflation.
Current Economic Conditions:
-The chart suggests a potential recession on the horizon, marked by the recent economic indicators and historical patterns.
Bitcoin's Role in the Current Economic System:
This is the reason the goverments wants to stop Bitcoin. People want out of their slave system where they create abundance for themselves with money printing while our labor value is always decreasing.
Recession Expectations and Market Opportunities:
Be open to a recession in the coming winter. The CME is having a meeting today where there is a 5% chance for a 0.25 rate cut and a 95% chance for a cut in September. Historically, there is a two-month window where the market booms and then rolls over into a recession after rate cuts. This supports the idea of a left-translated cycle and a longer multi-year cycle. For more information, see "The Fourth Turning."
Investment Opportunities_
With this information, there can be good opportunities to get in early on investments in the precious metal markets like gold and silver, and also mining stocks. Production materials like copper, oil, and steel can be great shorting opportunities in the coming weeks and months.
Conclusion:
Understanding these economic indicators and historical patterns provides valuable insights for making informed investment decisions. While the future economic landscape looks challenging, strategic investments in precious metals and shorting opportunities in production materials could offer significant returns.
How can the Fed cut rates if liquidity is still high?Liquidity is the driving force for higher assets and higher inflation. Now with the US equity indices at new all time highs as shown in the chart below, how can the Fed cut rates if liquidity is still high?
🇺🇸 US2M - QE To buy the US Debt again ? 💎Here's an intriguing observation I'd like to discuss. The increasing number of diamond 💎💎 alerts serves as a warning sign indicating an imminent significant market move.
- What is the US2M?
The M2 money supply is a measure of the total amount of money in circulation within an economy that includes cash, checking deposits, savings deposits, and other liquid assets. It's broader than M1, which only includes cash and checking deposits. M2 is important because it gives a more comprehensive picture of the available money for spending and investment within an economy.
- Does quantitative easing add to the money supply?
Quantitative easing expands the money supply by enlarging the central bank's balance sheet and introducing fresh cash into the economy. This process boosts banks' reserves held at the central bank, effectively increasing the overall money available for circulation and lending.
So what does it imply ?
📈 When we say quantitative easing increases the money supply, it means that it adds more money into circulation within the economy. This can lead to more available funds for spending, investment, and lending, which can stimulate economic activity. ( + the US Dollar often goes down in this case)
📉 On the other hand, if we say quantitative easing decreases the money supply, it would mean the opposite: the central bank is reducing the amount of money in circulation. This could be done to control inflation or to address other economic concerns where too much money in circulation might cause problems like rising prices. (+ the US Dollar often goes up in this case)
Do not forget to check this US2M Chart, it is very important.
I wish you a great day.
ILT 💎
Plenty of liquidity in the market + more liquidity to come?We still have distortions from the monetary liquidity introduced during the pandemic.
The bottom indicator is the 12-month rate of change. We can see an extreme expansion in M2 and subsequent contraction.
On the other hand, we can see that the M2 line still shows a big stock of liquidity compared to the standard deviations. Each standard deviation on the chart represents 2 trillion dollars. This shows that liquidity is abundant in the market, as the M2 is currently 2 to 3 standard deviations from its 10-year average.
In other words, the M2 standard deviations show around $5 trillion in excess liquidity compared to the 10-year average, indicating that the money supply remains significantly elevated despite the recent contraction in the 12-month rate of change.
This excess liquidity in the system may continue to impact asset prices and inflation and fuel a bull market.
Finally, considering the fragility created by high interest rates in the banking industry, the FED might be forced to ease monetary policy and lower interest rates further to stabilize the financial system.
This is another reason to be bullish or... in case the FED doesn't ease the monetary policy, to be bearish!
Quantitative Support in the US1. Liquidity and Investments:
An increase in M2 typically means there is more liquidity in the economy, as consumers and businesses have more cash or cash-equivalents at their disposal. This excess liquidity can lead to increased investment in stocks, including those in the S&P 500, driving up stock prices.
2. Economic Expectations:
A growing money supply can signal that central banks (like the Federal Reserve in the United States) are implementing looser monetary policies, often in response to concerns about economic growth. Lower interest rates and other forms of monetary stimulus can encourage borrowing and investing, leading investors to buy stocks in anticipation of economic recovery or growth, which can push up stock market indices like the SPX.
3. Inflation Expectations:
Over the long term, increases in the money supply can lead to inflationary expectations. If investors believe that inflation will rise, they might choose to invest in assets like stocks, which are seen as a hedge against inflation, because companies can raise prices to maintain their revenues and profits in nominal terms. This shift can drive up stock prices, including those in the S&P 500.
4. Risk Appetite:
An expanding money supply can also affect investor sentiment and risk appetite. With more money available and potentially lower returns from traditional safe investments (like savings accounts or bonds, which might offer lower interest rates when the money supply is growing), investors may turn to the stock market in search of higher returns, driving up equity prices.
S&P can go higher, this depends on the FED
Golilocks continues.
The economy is not going to crash, why?
It's already happened. We had a GFC.
Go to university and do any relevant classes to macroeconomics. You will at some point discuss, or study the GFC. This is so we does not happen again.
Of-course nothing is going to go terrible during a US election year.
Now this does not stop black swan events...
SOLOS-CHART2013(KAFKA)1. Lines representing the money supply metrics for the United States (US M2 - blue line) and the central banks for Japan (JP M2 - purple line) and the European Union (EU M2 - dotted purple line), charted against the left vertical axis as percentages. The money supply data shows a significant increase over time, especially notable during the time period that aligns with the COVID-19 pandemic where expansionary monetary policies were common.
2. A comparison of currency pair exchange rates, charted against the right vertical axis in terms of index values: EUR/JPY (red line), JPM2/EUM2 (green line), and USD/JPY (orange line). These pairs reflect the value of the euro and the U.S. dollar against the Japanese yen, and the ratio between the Japanese and European money supply measures.
Latest Solos-Chart(KAFKA)1. Lines representing the money supply metrics for the United States (US M2 - blue line) and the central banks for Japan (JP M2 - purple line) and the European Union (EU M2 - dotted purple line), charted against the left vertical axis as percentages. The money supply data shows a significant increase over time, especially notable during the time period that aligns with the COVID-19 pandemic where expansionary monetary policies were common.
2. A comparison of currency pair exchange rates, charted against the right vertical axis in terms of index values: EUR/JPY (red line), JPM2/EUM2 (green line), and USD/JPY (orange line). These pairs reflect the value of the euro and the U.S. dollar against the Japanese yen, and the ratio between the Japanese and European money supply measures.
Business Cycle Rotation Part 5In the first four installments we described an exercise utilizing the momentum in asset classes, the relationship between those classes and the Organization for Economic Co-operation and Development (OECD) Composite Leading Indicator (CLI) for the United States, to anticipate the business cycle and markets. In the last installment we discussed the changes from the end of 2022 until October 2023 and interest rates. Those posts are linked below. In this installment we address the macro environment.
Since October when this series was mostly written, several markets have made promising changes in their momentum states and chart patterns. But this is a teaching exercise so we will mostly work with the data available at the end of September 2023 and mostly ignore the dramatic changes of the last few weeks.
It is said that markets are discounting mechanisms, anticipating change in the business cycle. I believe that it is generally true, and while it has been less true for much of the last two decades, it is about to become true again. It is my view that a large portion of the bull market of the last fifteen years is largely an artifact of the liquidity flood that followed the 2008 financial crisis.
Starting in the late 1980s the deflationary forces created by globalization and technological advancements enabled central bank activism and allowed fiscal authorities to run massive deficits without readily apparent repercussions. The willingness of monetary authorities to support asset prices rendered the business cycle mostly benign and economic signals generated by the markets less useful. Bullish trends became longer and more entrenched, dips better supported, overbought conditions persisted longer while oversold conditions were fleeting. Counterproductive trading and investing behaviors and bad analysis were continuously bailed out by policy.
I believe that there has been a shift in the inflation regime following the pandemic and as a result, an enduring shift in monetary policy. Central banks will be more focused on fighting inflation and liquidity, except during episodes of explicit systemic risk, will be far more constrained. As a result, the rates/commodity/equity link will become strong again. At the same time, high debt levels and debt servicing costs will increasingly severely constrain fiscal policy. Generally speaking, more frequent periods of higher inflation and higher debt burdens should result in higher yields and an economy that grows below potential. There will be growth constraints on commodities, and equities whose earnings are constrained by higher rates and inflation.
Markets will become choppier, dips larger, overbought conditions persist for much shorter periods while oversold conditions become more numerous and deeper. Counterproductive trading and investing behaviors and bad analysis will be far less likely to be bailed out by policy.
Importantly, in a more inflationary environment, debt and equity will be mostly positively correlated, mostly rising, and falling in tandem as inflation ebbs and flows and during periods of systemic risk.
Distortions from massive monetary and fiscal liquidity introduced during and after the pandemic continue to reverberate through and distort markets and growth. I think this is best illustrated by M2 money supply. The bottom panel is the 12 month rate of change. This is the chart that I see used most often to describe liquidity. You can see the extreme M2 expansion during the pandemic and the subsequent sharp contraction. In my view, this represents the "flow" of liquidity. The flow has declined significantly over the last 2 1/2 years and is now negative. This has led many to conclude that the liquidity is constraining both markets and growth. On the other hand, the top panel is M2 regressed from the Black Monday stock market crash in 1987. I think of this as the "stock" of liquidity. Viewed in this manner the 'stock" is still more than 2 standard deviations above the long term growth line. In my view, changes in "flow" probably do not matter nearly as much when available "stock" is this high. Anecdotally this chart helps explain my general observation over the last year that markets continue to trade as if liquidity remains plentiful.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
A lot of moneyA lot of money:
USM0 = 5,559,000,000,000
USM1 = 18,320,000,000,000
USM2 = 20,865,000,000,000
USMR = 7.9%
US10Y = 4.935%
These gradations are in decreasing order of liquidity.
M0: Strictly coin & note currency in circulation plus commercial bank reserve balances at Federal Reserve Banks; M0 is often referred to as the "monetary base."
M1: Includes M0 monies defined as the sum of currency in circulation, demand deposits at commercial banks, other liquid deposits and traveler's checks.
M2: Is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.
M3: A measure of the money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements (repo), and larger liquid assets. Often referred to as "broad money," which are more closely related to the finances of larger financial institutions and corporations than to those of small businesses and individuals.
USMR: 30-Year Mortgage Rate is average 30-year fixed mortgage lending rate measured during the reported by week and backed by the Mortgage Bankers Association.
US10Y: The U.S. 10-Year Bond is a debt obligation note by The United States Treasury, that has the eventual maturity of 10 years. The importance of the 10-year Treasury bond yield goes beyond just understanding the return on investment (ROI) for the security. The 10-year is used as a proxy for many other important financial matters, such as mortgage rates & credit card APR.
Money Supply Contraction Means What?If you have seen the general news that M2 Money Supply is contracting at the greatest rate in 50 years, then you may be wondering why it is happening and what it means. I hope you do, at least.
Money Supply is a general term that means the total money available to an economy in the form of cash money in the bank plus loans and short term deposits sitting in banks. It is the purest measure of "gas in the tank" for the economy.
If you are going on a long trip (economic growth), it is also helpful to have a tankful of gas to get you there. If you don't have it now, then clearly you will have to stop and get gas along the way.
The economy needs money the way we need air to breath, unless we revert to trading goods and services with each other and we all know that isn't easy at all. It is hard to "make change" in case the trade doesn't balance perfectly.
Either way, the amount of money in the system turns over a certain amount of times per year and that is called "velocity". The velocity of money is the fudge factor to figure the size of the economy and the amount of money in the economy. Obviously, it is very difficult to track as some money gets spent a hundred times or more and other money gets spent once or twice. It is constantly changing.
Net-net though, the quantity of money is the most common way of understanding what inflation "will do" in the future and has been extremely helpful. For now, the indicator points to lower inflation if not deflation in the coming months and quarters. It will take care of itself.
Cheers,
Tim
2:16PM EST Sep 27, 2023
USM2 and SPX, "Printer goes Brrr"This in the past five years has been a very strong topping signal, I'm not sure if there's much more to add. The platform wants me to add some blurb to meet it's guidelines but what can I tell? The chart speaks for itself. Hope you've found it useful, it's certainly one of many things I have included into my market model.
Bitcoin has ouptaced every other asset over the last decadeIf you zoom out further - Bitcoin cant be overlayed as the other indices appear as horizontal lines; go figure!
US M2 Money Supply vs 6.5% inflationAs you can see on this chart since the launch of the Fed the curve they have been following is over 6.5% not the 2-3% we have been told.
Buy Bitcoin
Gold lagging overall money supplyJust a quick comparison between the gold price and overall money supply. Seems like there may be some catching up to do.
US Money Supply and Recession OutlookECONOMICS:USM2 There were four time US money supply trend has changed in last 60 years or so. The 1st one was with the Clinton Govt. with lower interest rate in 90's that started the boom and bust and 2001 recession. This trend starting in 90's changed with similar slope in 2008 when the interest rate went down to 0 after the Great Financial Crisis. This third trend line did reset during Covid resulting in current trend line with a near 90 degree angle of the slope - supply exploded with free money from government on top of 0% interest. This caused finally Fed to intervene and raise interest rate reacting to inflation.
Starting 2022 we do see the reversal of the latest trend. If the steep slope of money supply is unsustainable either 1) we yield to a new trend line with similar slope increment like past two events 2) Merge to existing trend that started in 2008 .
In case that scenario #1 materializes the new trendline which is nearly at angle vs. the previously emerged on in 2008 - we should see a so called small landing or a very mild recession. This should settle by around Q3 of '23. This might materialize with a rapid depletion of assets going below the dotted new trendline between April and July and then settles back by end of Q3.
In Case scenario #2 we should see a gradual depletion of the excess money supply that would bring the money supply to the 2008 trendline. This probably would mean a rolling recession in various sectors. We have already seen that happened in Housing followed by Technology. In this case with the strongest balance sheet in the bank - probably financial is going to be hit last causing credit crisis in around 2024 and finally Fed to cut and a recession to be over sometime around 2025 as highlighted with the red arrow aka "hard landing".
In either case - a recession in a presidential election year or the year before is rare if not unprecedented. This will not be desired in current social and political environment of United States - something to worry about for the '24 election outcome.
And in either case - unless we (the tax payers) are paying for a incompetent and blatantly stupid Federal Reserve - I don't see how Fed can stop raising or pausing interest rate until money supply is curbed. So far the trend reversal is very short and not steep enough - so it will be unbelievable if Fed declares victory with inflation.
In other words, in "normal world" pain should sustain and stocks and bonds should be shorted.
sp500 predictor ?so in blue USM2 / USUP * 10y2y / NQCICBER
in orange the sp500 , my suscription give just this short historic , so what do you see in the past please ?
Has money supply really gone parabolic since 2008? No.US money supply (pink) has actually steadily increased in percentage terms. It has not risen sharply despite what most people say.
Using a log scale shows the steady rise in percentage terms. If you use an arithmetic scale it looks like things are going parabolic. But you can't compare values from 50 years ago with values today, because compounding over time has a large effect over time. Use a log scale chart for any long-term analysis.
Over the long term, money supply rises. Inflation, which people often talk about in association with money supply has no visual relationship.
People talk about rising money supply as a cause for inflation. As you can see money supply constantly rises, and at a pretty steady rate. Inflation on the other hand, moves up and down. If you want to find a cause for inflation, don't quote money supply. The relationship isn't there.
People also say inflation occurs when money supply rises faster than inflation. That doesn't hold true either. Even on a shorter time frame, I went through and looked at increasing periods of inflation...sometimes money supply increased faster than inflation, sometimes GDP increased more, and other they were rising together.
Finally, if looking at any of these things to predict stock moves, they don't seem to hold true. Basically, if you are analyzing stocks, analyze stocks. Adding in this other stuff just creates a bunch of noise. This is not my opinion, just my interpretation of the data, which may be flawed?
Here's How I created the chart:
Money Supply, GBP and S&P 500 are all log scale.
Inflation is arithmetic.
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