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Presenting The Source Of The "US-Europe Decoupling" Confusion
Over the past several months, starting with the great US stock market surge back in October 2011 which was not paralleled by virtually any other index in the world (and especially not Spain which recently breached its March 2009 low), there has been a great deal of speculation that just because the US stock market was doing "better", that the US economy has by implication "decoupled" from Europe. Well, as yesterday's GDP number showed in Q1 the economy ended up rising at a pace that was quite disappointing, but more importantly, which even Goldman admits is due for a substantial slow down in the coming months. And ironically, in the past 6 months it was not the Fed, but the ECB, that injected over $1.3 trillion in the banking system. One would think that this epic "flow" of liquidity from the central bank would result in a surge in the only metric that matters to 'Austrians', namely the expansion in money (or in this case the widest metric officially tracked on an apples to apples basis - M2). One would be very wrong. Because as the chart below shows, while US M2 has soared from the 2009 troughs, money "movement" in Europe has barely budged at all.
Comparing the change in "credit" between the US and Europe:
Needless to say, the lack of growth is not for lack of trying. Observe:
And:
The implications of this simple observation are rather profound:
- It elegantly confirms that any discussion of "decoupling" has nothing to do with the absolute or relative state of the economies in question, and quite the opposite: economic state is derived based on how the market is doing, which in turn flips all the fundamental assumptions of economics on its head.
- More importantly, the core premise of Austrian price formation is validated by the mindless droning of TV anchors who constantly regurgitate "decoupling, decoupling, decoupling", when in reality all they observe is the relatively flow through of money into the broader economy (read An "Austrian View" Approach To Equity Prices for much more on this fascinating topic).
- Most importantly it shows that since European M2 has barely budged despite the trillions of new liquidity injected, that the capital shortfall hole is so very vast, that the continent's banks will need at least several trillion more (which they will, more on that tomorrow) in ECB injections before the money gets even remotely close to entering the broader economy and thus spurring not only growth, but more importantly in this day and age of endless cause-effect confusion, asset prices.
Of course, the reality that everything in this world is determined simply by a) how fast central banks print and b) how faster they print relative to each other, would make the well paid jobs of professional financial analysts who focus on such trivia as fundamentals, technicals, geopolitics and what not, obsolete.
Which is why don't expect to hear much about this line of thought anywhere else. After all there are daily/weekly newsletters to be sold, soft dollars to be pocketed, and mindless screaming matches to sustain eyeballs which can then be monetized in exchange for Nielsen ratings and moderate (and declining) ad rates.
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Collapse Bitchez!
Dancing to a different count, that's all
the cracks widen: Merkel threatens next french president Hollande.
http://www.thelocal.de/politics/20120427-42215.html
Germany collapsing:
engineers to engage in country-wide strike.
http://www.thelocal.de/national/20120427-42217.html
third largest german retailer to slash 50% workforce.
http://www.thelocal.de/money/20120427-42221.html
she can't threaten she can cajole, after all she is only Euro full and doesnt want to go all the way, which you never say to a frenchman, who wants to bond you to joint and several, several times. She will be moved. Europa was a cow, remember. I just pray she says to him : drink your milk its pure europa brand.
Tyler,
This article is serious, could we get a closer look at last few months of money growth?
Coz i saw somewhere that Fed flow/money growth shrank recently (like last summer leading into July 2011) which means (as per your earlier articles) stocks down in US - you had an article about flow of funds and stock prices and it made a lot of sense.
Collapse is right.
BTW do you pay taxes? If yes you are a fucking moron!: http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-l...
Apple pays....ZERO! iZeroTax
weimar 2012
Switzerland accuses german migrants of stealing swiss jobs:
http://www.thelocal.ch/3199/20120426/
Switzerland should send those german migrants back to their soon-to-be-hyperinflated third world hole.
Spain's youth has found a way to get drunk at a fraction of the regular price: chupitos oxy-shot.
Oxygen+alcohol directly to your lungs.
http://luxmike.posterous.com/bebedeira-rapida-oxy-shot
chupitos oxy-shots? Reminds me that wodka tampons are in vogue too...
As healthy as the crocodile drug:
http://m.youtube.com/#/results?search_query=Crocodile+drug
If you haven't seen this before I recommend you do. This shit is scarry as hell!
http://m.youtube.com/#/watch?v=F5qzdUSbYrg
"ficar bêbado o mais rápido"
I don't speak European, but is that anything like LTRO?
Thats not flying -- Thats falling --- with style
Woody
OT
British Army setting up missile stations on roof of London apartment blocks
http://www.latentexistence.me.uk/missiles-over-london-a-new-olympic-event/
The resident himself on twitter https://twitter.com/#!/Brianwhelanhack
http://www.telegraph.co.uk/sport/olympics/news/9234030/Missiles-stationed-on-residential-roof-for-Olympics.html?utm_source=dlvr.it&utm_medium=twitter
thats to avoid riots after the Olympics; when the people realise the money spent and the little return on investment, except for City banks. Govt debts and bank profits; recipé for a stolen Olympics wose budget had quadrupled.
Is there really any demand for credit (or worse, suitable collateral) left at all in the eurozone?
Wasn't there in the 70's this old adage "you can bring the horse to the water but you can't make it drink"?
For all their faults, and for some structural differences in both saving and lending, continental europeans are not that obsessed by their stock markets levels - if the sovereign can revolve their debt and the companies are not screaming for loans, for the ECB it's mission accomplished - at least in theory and for the moment... my 2 cents, pls enlighten me if I'm wrong
No, the 70's version was, "You can lead a whore to culture, but you can't make her think."
Easy, it takes 3 Swiss (or Germans, or French, substitute whichever nationality you prefer): 2 hold the horse's head under, the 3rd sucks on his ass.
Re: ...horse... "..., but you can salt their oats."
if ECB gave me unlimited amount of 1% loans. I would also buy AAPL.
lmfao. i cant believe europe fuked up so bad. offer unlimited loans at 1% to banks who are going to fail soon.
Right, the smart CB's lend to the banks at 25bp and they lend it to the govt at 200bp.
look at the ones the ECB lent to, they just bought bonds so the ones who couldnt get out the first time got another chance to get out and are worse then before the LTROs. At least QE didnt fuk things up more, lol, drive every country into recession with austerity and lend to their banks who are about to fail so they can go deeper in the same debt that caused the crisis which will drive up yields even more.
Who care s about the Oylmpics. Bigger issues at hand.
Zero Sum: Euro capital flows toward US equities and bonds. The worse it gets over there the worst is postponed here.
The ECB balance sheet expands b/c the sheets of client banks are shrinking. More Zero Sum.
When EU countries' economies fail, the demand is exported elsewhere (to US). So far EU unraveling has been pain free for the US as a result.
Zero Sum is a bitch ...
It's a shame that money supply data is so often misconstrued
So when the EU prints trillions and trillions more everything will be ok again? At least for another market ramp into next year. Or is that new money going to go towards drones and a military for Germany?
Suicides Have Greeks on Edge Before Election
In the good old days we used to have bankster's taking the leap of faith for the bad loans they gave out.
How things have changed.
Would this imply that the slaves/ citizens have rebelled? I would have thunk that the smart people would have been smarter than the dumb people?
Paradoxes are evidence of things even more brilliant than me?
Maybe.
Money is like manure; no good unless you spread it around.
There are 5 million businesses in the USA.
1/1000th of them are listed in "the markets."
Why do people still conflate "the markets" with "the economy?"
because they are bigger then the other 999. like how the 1% owns 80% of financial assets.
Nothing matters.......the whole world is fucked. All the bankers care about is saving their own asses......you and I be damned.
What nonesense is this! This article shows the author does not understand a jota how currency swaps work. It was the Fed's ccy swaps that actually "coupled" the EU to the US. The decoupling is just a term used by the ignorants that can't see that when the swaps are on, dollars don't need to leave the US to fund the EU. And because of that, the oversupply of US dollars is poured on to stocks, bonds and gold, creating the rally. But in fact, this couples the Fed with the fate of the EU. Not the opposite!
And all this time I thought Fed swap lines with the ECB were U.S. dollar based loans "collateralized" by Euros. How ignorant of me.
Europeans gonna commit economic suicide before the berbers all come back.
Tyler
What is the trump card...M3 or M2? and is http://www.nowandfutures.com/key_stats.html a reasonable facsimile for M3?, whose second derivative is steeply negative. Also this must worry Bernanke, as the velocity further decelerates http://research.stlouisfed.org/fred2/series/M2V
Jim Cramer has no idea what you are talking about.
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Using The MACD Indicator
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As far as the ECB liquidity injections, all you have look at are the daily deposit figures at the ECB to see where the money is. Remember, the net LTRO's were only 510bEuro or so, but as of last week, the deposits held at the ECB were in the range of 760bEuro's daily.
The real liquidity that is being injected into the Euroland is via the Fed swap lines. Haven't seen a figure on the gross in a while, but I would bet it's close to $150b by now.
Morgan Stanley charts are dramatically different from these charts as to the recent rate of increase in the money supply.
http://nowandfutures.com/key_stats.html
Morgan Stanley charts are dramatically different from these charts as to the recent rate of increase in the money supply.
http://nowandfutures.com/key_stats.html