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M2 Money Supply Shrinkage Accelerates

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Mar. 07, 2023 7:24 AM ETTBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, PLW, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, GSY, TYD, EGF, VUSTX, FIBR, GBIL, UDN, USDU, UUP, RINF, AGZ, SPTS, FTSD, LMBS, SPTL, LGOV, SCHQ, TFJL, TBJL, GOVZ, UTWO, VLGSX, PRULX, VEDTX, FBLTX, PEDIX, ACTV, AFMC, AFSM, ARKK, AVUV, BAPR, IVOO, IVOV, IVV, IVW, IWC, IWM, IWN, IWO, IWP, IWR, IWS, IYY, QQQ, SPLV, SPLX, SPMD, SPMO, SPMV, SPSM, SPUS, SPUU, SPVM, SPVU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SPYD, SPYG, SPYV, SPYX, SQEW, SQLV, SSLY, SSO, SSPY, STLV, SVAL, SYLD, TMDV, TPHD, TPLC, TPSC, UAUG, UJAN, UMAR, UMAY, UOCT, UPRO, USEQ, USLB, USMC, USMF, USVM

Ivan Martchev floor plan picture

Summary

  • The full magnitude of money successful nan U.S. financial strategy is thawing for illustration outpouring snow. In nan latest reported months, M2 money proviso shrank by 1.3% successful December and 1.7% successful January.
  • The only logic ostentation was not higher than what we sewage successful nan '70s is nan truth that nan U.S. system is simply a batch much integer now, truthful it is harder to raise prices.
  • The chaotic paper remains nan Ukrainian situation, which tin erupt astatine immoderate minute, and astir apt importantly much violently than nan measurement it is proceeding astatine present.

Currency and Exchange Stock Chart for Finance and Economy Display

cemagraphics

The full magnitude of money successful nan U.S. financial strategy is thawing for illustration outpouring snow. In nan latest reported months, M2 money proviso shrank by 1.3% successful December and 1.7% successful January. Since this has ne'er happened before, we don’t cognize what nan effect would be, moreover though my gut emotion tells maine that it will beryllium deflationary. Less money chasing a akin magnitude of equipment and services intends little value pressure.

M2 Money Supply Chart

Graphs are for schematic and chat purposes only. Please publication important disclosures astatine nan extremity of this commentary.

That M2 spike (above) was a horrific but basal surge successful money proviso successful 2020, which caused nan caller ostentation and consequent thrust to extremity it done monetary tightening. As they are nary longer giving money distant that easy successful Washington, ostentation will spell down. I would not beryllium amazed if by nan end of 2023 nan Fed will beryllium worried astir nan system a batch much than it is worried astir ostentation correct now.

The Fed likes to opportunity that location is nary beardown relationship betwixt money proviso maturation and inflation, but nan caller 26.9% surge successful M2 connected a year-over-year ground successful February 2021 is astir double what we saw successful nan 3 ostentation spikes of nan 1970s done nan early 1980s, which only reached nan debased teens.

The only logic ostentation was not higher than what we sewage successful nan '70s is nan truth that nan U.S. system is simply a batch much integer now, truthful it is harder to raise prices. Still, pinch nan horrific proviso concatenation bottlenecks during COVID, nan ostentation spike was inevitable. Yes, I deliberation ostentation would person been little without those bottlenecks, but higher than pre-COVID fixed nan avalanche of authorities rate that entered nan system.

Bonds Hold nan Key to nan Stock Market

A crisp reversal successful Treasury futures, pinch nan 10-year dropping from 4.09% connected Thursday to adjacent astatine 3.97% connected Friday, caused a surge of complete 125 points connected nan S&P 500 futures, from a debased of 3925 Thursday greeting to 4053 connected Friday. That’s a beautiful large move successful conscionable 2 days. What I person noted is that nan banal marketplace ignores a emergence successful Treasury yields for a week aliases 2 and past starts to interest astir them. Treasury yields were rising from nan commencement of February, while stocks began to consciousness it successful mid-February.

Standard and Poor's 500 Index Chart

Graphs are for schematic and chat purposes only. Please publication important disclosures astatine nan extremity of this commentary.

The cardinal present is to spot if nan 10-year is headed for a retest of 4.33% and, God forbid, a caller rhythm precocious supra that. I didn’t deliberation it was going to hap a period agone but fixed nan talk retired of nan Fed and immoderate hotter ostentation numbers and amended economical information overall, it judge looks to beryllium successful nan cards now.

The adjacent catalyst for making that trial could beryllium nan payrolls study connected March 10. Since location were plentifulness of seasonal factors for nan overmuch stronger-than-expected January payrolls report, 1 has to wonderment what happened successful February. A overmuch stronger payrolls study intends nan 10-year supra 4.09%.

United States Two Year Note Bond Yield Chart

Graphs are for schematic and chat purposes only. Please publication important disclosures astatine nan extremity of this commentary.

The 2-year statement is nan only maturity supra its November highs, erstwhile nan 10-year deed 4.33%. Some marketplace participants deliberation that nan 10-year won’t make it to its November highs arsenic nan system will weaken this spring. If nan system does not weaken, though, an battle connected 4.33% is near-certain and a caller rhythm precocious will apt travel because nan German bunds and different European authorities bonds are already supra their November highs owed to nan lagged ECB monetary tightening, which has importantly much room to tally compared to nan Fed, frankincense pushing eurozone yields apt higher.

The chaotic paper remains nan Ukrainian situation, which tin erupt astatine immoderate minute, and astir apt importantly much violently than nan measurement it is proceeding astatine present. I position Ukraine arsenic euro-bearish and dollar-bullish, arsenic good arsenic mostly affirmative for authorities bonds and antagonistic for stocks, though correct now astir of those plus classes are ignoring it, apt because it hasn’t escalated importantly yet.

All contented supra represents nan sentiment of Ivan Martchev of Navellier & Associates, Inc.

Disclosure: *Navellier whitethorn clasp securities successful 1 aliases much finance strategies offered to its clients.

Disclaimer: Please click here for important disclosures located successful nan "About" conception of nan Navellier & Associates floor plan that travel this article.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Ivan Martchev floor plan picture

Ivan Martchev is an finance strategist pinch Navellier Private Client Group. Previously, Ivan served arsenic editorial head astatine InvestorPlace Media. Ivan was editor of Louis Rukeyser's Mutual Funds Newsletter and subordinate editor of Personal Finance Newsletter. Ivan is besides co-author of The Silk Road to Riches (Financial Times Press). The book provided study of geopolitical issues and finance strategy successful earthy resources and emerging markets pinch an accent connected Asia. The book besides correctly predicted nan illness successful nan U.S. existent property market, nan emergence of precious metals, and nan resulting accrued investor liking successful emerging markets. Ivan’s commentaries person been published by MSNBC, The Motley Fool and others. Currently Ivan is simply a play editor of Navellier’s Market Mail and a contributor to Marketwatch.

Editor: Naga



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