Dude- Market rolling over- See Don Coxe
Brief summary of Coxe's latest with respect to monetary trends. (from his weekly confernce call..)
Don Coxe:
Global money supply growth has really slowed down. Adj US monetary base (his favorite indicator) is contracting or rolling over because of Fed tightening. Adj Monetary Base has grown less in the last 12 months than US nominal GDP. A similar tightnening process has been ongoing with Bank of England for some time.
These actions, according to Coxe, represent a very severe constraint on economic growth. Negative growth in base money, and high oil prices, suggests that the economy has got to slow down. Housing/Mort market and situation with consumer (debt and high oil prices) is a potent and ominous combination at the current time.
The former stimulus package is already out there, and is now pretty much become exhausted. You just can't keep on cutting taxes and interest rates. The 6% of US GDP that's bleeding away due to the current account means it'll be difficult to stimulate the US economy from here. What all this could mean is that the 1st Quarter may be the high for the S&P 500, as well as certain other benchmark indicators.
He's reducing bond duration, being long the bond is no longer a viable strategy. Other discussion speaks about how the dollar has shown recent signs of strength while the eurozone has failed to live up to it's own economic forecast.
Watch out in the financial sector, he says. All serious financial bear markets are prefigured by decline in relative strength (to S&P) in financials sector. When they're underperforming look out. This is not a time to be committing new money in the market.
As for using the adjusted monetary base as a trends indicator, if Coxe thinks it's most significant, guess I should bow to his obvious expertise. In this respect, he's in the same camp with such likes as Larry Kudlow, which got me to looking at some other arguments on money supply.
I recently looked at Nicolas Bouzou's paper, How Should We Define the Money Supply ? Austrian Versus Monetarist Approach. Bouzou states:
“In order to construct a proper Austrian indicator applied to the American case, it is necessary to exclude from M1, M2 ands M3 pure credit transactions that do not give rise to a money creation like traveler's checks, time deposits and money market mutual funds. We add demand and other deposits held by the US government, foreign official institutions and foreign commercial banks. This gives us and indicator quite similar to MZM (Money of Zero Maturity)."
FWIW: Here's the most recent account by St. Louis Fed:
MZM (money of zero maturity, i.e. counting all liquid money not tied up for any period of time) - Compounded annual rates of change at [dates], compared to average 4 weeks ending 3/14/05
DATES:
03/15/04....2.9
06/07/04....0.9
08/16/04....1.1
09/13/04....1.0
10/11/04....0.2
11/08/04....0.1
12/20/04....(1.5)
01/17/05....(2.9)
source: Research Division - Fed Reserve of ST. Louis
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