UP $220+ billion or at an annual rate of 10.9% in the last 10 weeks-just a huge amount. During this time, that supply of $s have pushed the $, as measured by the DXY, to 2 month lows on 8/8. The FED desperately wants the economy tho strengthen before tapering , so is juicing the money supply to do so. In prior posts, I have been expecting that rather than get stronger GDP growth, that inflation will pick up leading to stagflation. Well, import prices, PPI and CPI come out next week on the 13th-15th. Given, in recent weeks, that bad news is good news, the market may just like the pickup in inflation-if I am correct on the inflation call. Certainly there are new "mountains" of liquidity in the financial markets that need a home.
M2 money supply growth, which had been up 10.7% annual rate a few weeks ago has settled down by being mostly flat in the last 6 weeks. With M1 and M2 velocity of money at record lows, the FED is pushing on a string, such that QE is having little effect on the real economy as measured by GDP, jobs, real income etc.
On the other hand, QE induced liquidity is pushing bond prices up worldwide, along with stock prices. Another emerging effect is the value of the $ is trading near the low end of it range. This makes sense as excess liquidity, already having bid up US bond and stock markets to "nosebleed" levels, tries to find "homes" overseas-therefore needing to buy those country's currencies and selling the $. The US has yet to "import" inflation from the weak $, but continued $ weakness will increase that risk.
Trading partners, maybe forced to QE themselves as they see their strengthening currencies hurt their export industries. Eventually all these "beggar thy neighbor" policies will be very beneficial for PMs, oil and NG..
M2 up $22 billion in the latest week, now up $240 billion the last 11 weeks or an annual rate of 10.9%-very large vs historical of 5-6%. However, the M1 velocity of money is near all-time lows and M2 is at at an all-time low. So, as far of the real economy, it is tough to tell how much this M2 growth will translate into Real GDP growth. In the short run, this bulge of money, i.e. and increase in $s, is putting downward pressure on the $.
Loans, for the week end 8/7 as reported by the FED, were down $30+ billion vs the prior week. In a nut shell, loans have been flat since last December-US "credit engine" is stalling. With that and flat real income y/y, GDP growth will be anemic and not likely to support higher sales and earnings to the extent the market has bid up stocks. A little fun fact I read today, for the Dow 30, EPS were down 2.1% y/y and sale were down 3.1%. That begs the question, why have "investors" been biding up stocks? Answer, it has been a momentum trade. Recent pricing action suggest that momentum trade is over. S&P 500 gets interesting to me around 1450-about 15% off the recent high.