Yes, It Will End Badly. But in the Meantime...

... there is a lot of money yet to be made.  From Saturday's Wall Street Journal.

Worries are spreading that, like previous liquidity-driven market surges, this one could end badly, though many investors believe that won't happen soon.

Money supply in major countries, as measured by cash and checking accounts, has been rising sharply relative to gross domestic product, or total value of goods and services, Morgan Stanley reports. Money supply relative to GDP is at the highest level of any period covered by Morgan Stanley's data, which go back to the 1970s.

That measure of money supply has tended to move in line with bull and bear markets. It was declining in the late 1980s, ahead of the 1987 crash and the 1990 bear market. It started expanding in 1995, as a major bull market began. It started pulling back in March 2000, as the stock market fell. It then began expanding at the start of 2001, ahead of the next bull, only to top out again at the end of 2006, ahead of the next bear. Now it is surging again.

1100 on the S&P 500 anyone?

Comments

[Steve Ross]

Interesting chart, but is it a case of seeing what you want to see? From what I see here the Liquidy starts to take off at the start of 2001. The market bottomed at the end of Sept. 2002 21 months later. The way I interpret this chart, and not necesserily my personal opinion, 21 months would take us to the market bottoming late Sept 2010. Guess this is what those ink blot tests were all about.

[psychodave]

"1100 on the S&P 500 anyone?"
Naw, but I'll believe 1054 or 1085.

Invert that %-age and one suspects Velocity of Money is declining.

A parallel with 1982 & 1984 (wish yer chart had included 'em) suggests that the Fed or, more likely, the neurasthenically hysterical bond market, might tighten due to nominal M-1 growth and, yet again, bring a fragile economic recovery to a screeching halt, leaving unemployment and capacity underutilization at robust highs for years.

Good to see you posting.

[alan smithee (nee kerry)]

The explanation to me many years ago is that once the bubble fundamentals start to buckle, you can increase liquidity as much as you want but you can't push the string. This is what happened in Japan as they bounced around as the bubble burst.

People automatically are thinking that we will struggle as debts are paid off and as we face massive unfunded liabilities such as social security and Medicare. This makes sense to me, but the US generally has a way of mounting the unmountable(snort), hopefully not getting mounted this time around.

[Mark G.]

Money isn't moving. 500 on the S&P 500 anyone?

[Mark G.]

Money isn't moving. 500 on the S&P 500 anyone?

Posted by: Mark G.

Allow me to correct my previous post. The debt created to trade public debt for private debt isn't moving except in a circle. As this debt goes around in a circle, the "new" debt's velocity has slowed by 20%

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Interesting chart, but is it a case of seeing what you want to see? From what I see here the Liquidy starts to take off at the start of 2001. The market bottomed at the end of Sept. 2002 21 months later. The way I interpret this chart, and not necesserily my personal opinion, 21 months would take us to the market bottoming late Sept 2010. Guess this is what those ink blot tests were all about.