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Atle Willems, CFA
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Atle Willems, CFA, is an equity investor with a long-term view investing in undervalued listed shares with solid operational track records and sensible balance sheets. He holds a master's degree in finance from Nottingham University Business School, a bachelor's degree in business... More
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Liabridge
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EcPoFi - Economics, Politics, Finance
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  • "Austrian" True Money Supply Weekly (9 Mar 2015)

    The short version of the "Austrian" True Money Supply for the U.S. increased 0.32% on last week for the week ending 9 March 2015. At $10.7919 trillion, a new high, the money supply is now up $189.7 billion, or 1.79%, year to date.

    The 1-year growth rate for the week came in at 7.60%, down from 7.82% last week and 31 basis points lower than for the same week last year.

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    The 5-year annualised growth rate was 10.00% for the week, the lowest reported for 13 weeks and 80 basis points lower than one year ago. This was the 67th week in a row with a declining growth rate compared to a year ago.

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    The dramatic monetary expansion in the US since the 2008/9 banking crisis becomes more readily apparent when looking at the longer term growth rates. Since bottoming at 5.57% in January 2007, the 20-year annualised growth rate has since climbed to the current 8.17% and is closing in on the 8.20% record from September 2002.

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    *****

    Price inflation expectations in the US has dropped significantly since August last year. Back then, the 10-year break even inflation rate (the difference between the 10-year treasury yield and 10-year TIPS) stood at 2.28% compared to 1.73% as of week ending 13 March.

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    The "money relation", which measures the relationship between the demand for and the supply of money, also confirms there has been significantly less inflationary pressures during the last year compared to 2013. The current reading signals no immediate "financial crisis", but the fact that the relation has been in negative territory for 13 consecutive months serves as a warning that economic troubles could be looming. Remember that banks and the stock market both thrive when the money supply expands and people demand less money to hold, i.e. an increase in the spending/savings ratio. Conversely, a decline in the money supply growth rate and an increase in the demand for money to hold, i.e. a decrease in the spending/savings ratio, will have the opposite effect on banks, the stock market and prices in general, including stock prices.

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    Meanwhile, the aggregate money supply growth for the US, eurozone and the UK, measured in US$, has tanked during the last 12 months. Though this to a significant extent has been driven by a strengthening of the US$ compared to the euro, the drop in the growth rate does signal less inflationary pressure. In fact, there has been deflationary pressures for the three economies since October last year as the growth rate has plunged below zero.

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    As US bank credit growth continues to expand at a rampant speed and as the ECB has once again started to expand its balance sheet (QE), the growth rate might very well soon climb above zero once again. Investors oblivious to the long term better hope it does.

    Visit the "Austrian" True Money Supply archive here.

    Mar 20 11:31 AM | Link | Comment!
  • "Austrian" True Money Supply Weekly (12 Jan 2015)

    The short version of the "Austrian" True Money Supply for the U.S., the measure of the money supply applied in this weekly report, decreased 0.24% on last week for the week ending 12 January 2015. At $10.6120 trillion, the money supply is now up $10.0 billion, or 0.09%, year to date.

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    The 1-year growth rate jumped to 7.39% for the week, the highest for 16 weeks (22 Sep 2014). Though it remains lower than both the long term- and 52 week averages, the growth rate was once again higher than the same week last year for the fifth consecutive week.

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    The 5-year annualised growth rate is still stuck in a downward trend as the growth rate declined for the 59th consecutive week compared to same week last year. The growth rate is however falling less than was the case especially during the nine week period covering 20 October to 15 December last year. It should be highlighted that the current growth rate of 10.26% is 213 basis points, or 17.19%, lower than the 12.39% peak from 21 October 2013.

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    In summary, the overall growth rate in the money supply is still slowing down, but some of the growth rates are now flattening or even increasing.

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    *****

    The growth rate in Federal Reserve assets plus the Austrian True Money supply, a measure of the overall monetary stimuli, remains in a downward slide. Since peaking at 15.09% on 27 November 2013, the growth rate has since dropped to the current 8.19%, the lowest reported since 26 December 2012.

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    The repercussions of this slide in the growth rate is yet to play out. It is blatantly obvious however that CPI inflation expectations have been falling sharply since August last year when the Fed was nearing the end of QE3.

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    For an economy run on inflationary policies instead of low government spending, low taxes and a high level of savings and investments, this drop in CPI expectations could very well be a harbinger of an economic correction. Many indicators are certainly pointing in that direction. To the extent that a steepening yield curve signals a strong economy, the current yield curve signals no such thing as it has flattened greatly during the last year.

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    Visit the "Austrian" True Money Supply Weekly archive here.

    Related:

    Welcome to A Very Dislocated 2015

     

    Recap 2014: The Short Version of the "Austrian" True Money Supply (NYSE:TMS)
    Jan 26 7:31 AM | Link | Comment!
  • Deflation In Eurozone? No, There's Still Inflation And It Has Been Picking Up

    Eurostat recently confirmed that the annual inflation rate dropped below zero to -0.2% in December last year. The dreaded deflation has therefore arrived in the eurozone and monetary cranks* and demagogues are head over heels with the prospect of QE being implemented once again in the eurozone (e.g. here).

    But wait a second. We are here talking about price inflation. This must not be confused with inflation, which is an increase in the money supply. Based on the most recent data as of November 2014, inflation in the eurozone is actually picking up and has done so for the better part of 2014.

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    And if another monetary crank, Mario Draghi, gets to realise his dream of adding more zeros to the ECB balance sheet, inflation will likely increase yet further (or fall less than otherwise) fueling higher prices and a weaker euro (the market has already punished the latter). The citizens of the eurozone and owners of the euro end up paying the bill through an ever decreasing purchasing power while the banks rejoice.

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    * Ludwig von Mises, the economist, described the monetary crank as follows (in his book Human Action, originally published in German in 1940):

    The monetary crank suggests a method for making everybody prosperous by monetary measures. His plans are illusory. However, they are the consistent application of a monetary ideology entirely approved by contemporary public opinion and espoused by the policies of almost all governments. The objections raised against these ideological errors by the economists are not taken into account by the governments, political parties, and the press.

    It is generally believed by those unfamiliar with economic theory that credit expansion and an increase in the quantity of money in circulation are efficacious means for lowering the rate of interest permanently below the height it would attain on a non-manipulated capital and loan market. This theory is utterly illusory. But it guides the monetary and credit policy of almost every contemporary government.

    Related:

    The Central Banker of All Central Bankers Explains The Way To Recovery
    Jan 22 5:08 AM | Link | Comment!
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