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Malinvestment Lunacy Exposed As US Money Supply Growth Finally Begins To Crack
Submitted by Pater Tenebrarum via Acting-Man.com,
Breaking Below the Shelf
In our recent missive on junk bonds, we inter alia discussed the fact that the growth rate of the narrow money supply aggregate M1 had declined rather noticeably from its peak in 2011. Here is a link to the chart.
As we wrote:
“We also have confirmation of a tightening monetary backdrop from the narrow money supply aggregate M1, the annualized growth rate of which has been immersed in a relentless downtrend since peaking at nearly 25% in 2011. We expect that this trend will turn out to be a a leading indicator for the recently stagnant (but still high at around 8.3% y/y) growth rate in the broad true money supply TMS-2.”
Photo credit: Bari Goodman
In the meantime the data for TMS-2 have been updated to the end of October, and low and behold, its year-on-year growth rate has declined to the lowest level since November of 2008. At the time Bernankenstein had just begun to print like crazy, via all sorts of acronym-decorated programs (they could have just as well called them “print 1, print 2, print 3”, etc.). So we’re now back to the broad true money supply growth rate recorded at “echo bubble take-off time”.
Annual growth rate of US money TMS-2, breaking below the lower end of the range it has inhabited since late 2013 – click to enlarge.
This is the final piece of the puzzle if it keeps up (and why wouldn’t it keep up?). Stock market internals have become ever more atrocious in the course of this year, which we have regarded as a sign that not enough new money was being printed to keep all the pieces of the bubble in the air at once. Now there is even less support.
Lest we forget, this is the Greenspan-Bernanke legacy in terms of money supply inflation in toto:
Money supply inflation in overdrive – the Greenspan-Bernanke (and now Yellen) era – click to enlarge.
Evidence of Malinvestment and Lunacy
Here is an updated look at the ratio between capital goods (business equipment) and consumer goods production. As you can see, this ratio tends to expand during booms egged on by credit expansion, as more and more factors of production are drawn toward the higher stages of the production structure.
It subsequently contracts sharply during busts as the capital structure is rearranged to conform better to actual consumer wishes. Interestingly, it lately seems to be on the verge of crumbling as well.
Three giant booms caused by the expansion of money and credit. The economy’s pool of real funding has been thoroughly damaged by these booms, which is why we have just experienced the “weakest economic recovery of the post WW2 era” – click to enlarge.
We promised evidence of utter lunacy as well, which we hereby provide below. It is another small hint that the bubble in asset prices is likely close to its expiration date.
Stock of de facto bankrupt company moves from a low of 44 cents to a high of 46 dollars within just 6 trading days – click to enlarge.
Apparently KBIO, a tiny wanna-be biotech outfit announced about a week ago that it had run out of money and ideas to raise any fresh funds (no new suckers were found) and was about to wind itself down. The stock cratered to 44 cents, but suddenly and mysteriously, it began to rise on strong volume. Were the shorts covering? Not quite. Six days after trading at 44 cents, it hit a peak level of $46. No, this is not a typo and it is a real chart.
It seems bio-tech enfant terrible Martin Shkreli is somehow involved in this madness. You can get the background information from Zerohedge (where we learn that at least some shorts did cover, and were ruined in the process). A recent additional update is here. The whole affair looks slightly scammy, although no-one can keep anyone from buying the stock of a company that’s worth nothing and make it worth something in the process – evidently solely based on name recognition, a small float and by now truly desperate short sellers.
This is the kind of thing one usually gets to see in a bubble’s very late stages, although we wouldn’t be overly surprised if the stock market managed to hang in there for a little while longer (once money supply growth declines below the 3% to 5% region, it will be time to consider selling it with both hands).
Conclusion
The decline in broad true money supply growth below the lower end of its 2 year long range is a major crack in the echo bubble edifice. Very likely it is the most important one yet.
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just an observation
all the comments for the current Econ situation are less then for war chatter
that is all
Monetary velocity is a glaring omission from this article.
M1 velocity
https://research.stlouisfed.org/fred2/series/M1V
M2 velocity
https://research.stlouisfed.org/fred2/series/M2V
MZM velocity
https://research.stlouisfed.org/fred2/series/MZMV
Getting it yet? Push that string.
WTF! I linked to the same charts not 6 months ago and the history went clear back to before the depression, and you could see that the velocity was actually below depression-era numbers. Now FRED starts all data in 1959!
If you want to see an example, here's a FRED-generated chart going clear back to 1900.
These guys never stop covering shit up. It's insane.
Note to Janet: pretending it doesn't exist never makes a problem go away.
Everyone's hitting the brakes... except the gubmint. Only way for the gubmint to keep accelerating is by more debt and money printing. Taxes will be going down as incomes go down.
Austrians were right again.
President Obama:
Thwart terrorists!
End this deception by omission NOW!
http://showrealhist.com/begun.gif
http://showrealhist.com
my take on money supply expansion is simple. we take in "X" amount of tax revenues every year and the U.S. government feels the need to save none & spend $1 trillion additional we DON'T have every year without any threat of repercussion. the "pumping" of this $$$ while it has not made its way into base metals, physical underlying commodities such as grains, wheat, etc., for some reason, items such as healthcare, rent, college education, food (at the food store, restaurants), etc. are going higher (parabolic). bottom-line, they are NOT getting the type of "inflation" they are looking for (ie. wage growth) but the unintended consequence of proping up the stock market is the annihilation of the lower & middle classes because the things they need to survive have "inflated" to the point where they are maxed-out of cash & credit. IMO this point is justified by retail sales not seeing the bump everyone on CNBC was looking for when oil tanked and gas prices retraced 30-40%. where did all that extra $$$ go? either towards paying down debt racked-up over the past 5-7 years due to the inflation the fed doesn't want to talk about (which i just did) or just keeping up with existing bills. as for the money supply in the banks goes, that doesn't catch velocity unless/until 1. credit standards ease and more importantly 2. the fed raises rates to they entice banks to start going nuts loaning $$$.
When M1 drops, CPI goes up. Why aren't we seeing that this time? I think the FED is late with its QE4...
Next comes cost-push inflation.....
This is the kind of "stability" that is the US Federal Reserve's stock in trade. Everyone but the Fed's academic genius Phuds would cite this as the epitome of Instability. But not those academic genius Phuds from whatever idiot league schools they hail from. The Fed's academic genius Phuds, being completely oblivious to reality, sitting in their cushy taxpayer-provided offices, actually call this stability. The Fed's academic genius Phuds are at the very most qualified to be a clown sitting on the stool above the "dunking bucket" at your local circus.