I'm neither economist nor investment advisor, but the rise of cryptocurrency got me thinking about physical currency in America.
Most of us know the U.S. Treasury prints money. Here's a chart, roughly, of how much they've been printing:
There are several measures of money supply, but
WM2NS
is a fair picture of how much cash is out there. As you can see, it's a fairly consistent uptrend.
Most of the charts in this article will have three moving average lines, inspired by Dave Landry. As Dave writes, they aren't magic; they just give us some help visualizing trend. But if we add regression channels over the last 20 years...
...we see that the trend is almost straight-line. The channels are a best-fit straight line with lines drawn 2 standard deviations on either side, which, for normally distributed events should contain 95% of population. Look how narrow the channels are when compared to something a little less predictable,
SPX
:
Just for kicks, let's tighten the channels to 1 standard deviation on each side, which should contain 68% of the bars:
The only time the money supply growth dips below the channels is May 2006 through Nov 2008 and Sep 2009 through July 2011. Just to jog our memories, I'll overlay the
SPX
and the
RUT
.
Notice how, even though the money supply is always rising, when the pace of that supply drops a little bit, it precedes significant market drops, which "recover" when the pace of printing money returns to "normal."
Of course, this isn't they only way to look at market events in those periods. There were real fiscal crises that happened. There may be other causes. I'm only asking a question of myself,
"Is it possible that the extended bull markets we've seen are funded by the treasury's printing presses?"
And remember, we're not just talking about how fast those printing presses run; we're talking about how fast the Treasury adds printing presses, especially when we see the velocity of money production increase along with the recent bull market:
In 2014 the markets started to flatten out a bit. Feb 2014 saw a spike in money printing speed (notice the gapped bar.) A long bar show another spike in production Jan 2016, and a continued increase in speed through Sep 2018 when the stocks started sliding.
This month, October 2018, we see the first decrease in money supply since Jan 2013 (if you compare end-of-month to end-of-month).
Notice also the green, and drawn line marking the 2016 bull run.
I believe people can predict the markets. Anybody who tells you for sure the market will do a certain thing by a certain date is, IMHO, viewing you as a market. I sure can't time the markets; I just like thinking about charts and asking questions.
These charts leave me asking:
Most of us know the U.S. Treasury prints money. Here's a chart, roughly, of how much they've been printing:
There are several measures of money supply, but
WM2NS
is a fair picture of how much cash is out there. As you can see, it's a fairly consistent uptrend. Most of the charts in this article will have three moving average lines, inspired by Dave Landry. As Dave writes, they aren't magic; they just give us some help visualizing trend. But if we add regression channels over the last 20 years...
...we see that the trend is almost straight-line. The channels are a best-fit straight line with lines drawn 2 standard deviations on either side, which, for normally distributed events should contain 95% of population. Look how narrow the channels are when compared to something a little less predictable,
SPX
:
Just for kicks, let's tighten the channels to 1 standard deviation on each side, which should contain 68% of the bars:
The only time the money supply growth dips below the channels is May 2006 through Nov 2008 and Sep 2009 through July 2011. Just to jog our memories, I'll overlay the
SPX
and the
RUT
.
Notice how, even though the money supply is always rising, when the pace of that supply drops a little bit, it precedes significant market drops, which "recover" when the pace of printing money returns to "normal."
Of course, this isn't they only way to look at market events in those periods. There were real fiscal crises that happened. There may be other causes. I'm only asking a question of myself,
"Is it possible that the extended bull markets we've seen are funded by the treasury's printing presses?"
And remember, we're not just talking about how fast those printing presses run; we're talking about how fast the Treasury adds printing presses, especially when we see the velocity of money production increase along with the recent bull market:
In 2014 the markets started to flatten out a bit. Feb 2014 saw a spike in money printing speed (notice the gapped bar.) A long bar show another spike in production Jan 2016, and a continued increase in speed through Sep 2018 when the stocks started sliding.
This month, October 2018, we see the first decrease in money supply since Jan 2013 (if you compare end-of-month to end-of-month).
Notice also the green, and drawn line marking the 2016 bull run.
I believe people can predict the markets. Anybody who tells you for sure the market will do a certain thing by a certain date is, IMHO, viewing you as a market. I sure can't time the markets; I just like thinking about charts and asking questions.
These charts leave me asking:
- To what extent is market recovery and growth funded by the manufacture of currency?
- Can that manufacture continue indefinitely?
- Who decides to slow down that production, and why?
- What does a drop in money supply mean? I assume it's the Federal Reserve "paying off" the Treasury Bonds it used to create the money, simultaneously lowering its debt and increasing the value of money.
- Should this affect my market bias?
- Should that affect my investing?