Thursday, November 6, 2008

Money Supply Watch: FEAR Continues

The most recent money supply data has been released today by the Fed.

Although in the last couple of weeks M1nsa showed small declines, this week's M1nsa shows a jump of $77 billion from last week to $1519.6, which to us suggests that there remains a lot of fear in the system and that many choose to keep their funds in the relative safety of M1 components, such as currency and demand deposits. As we have said before, the economy and stock market won't turn positive until this flight to safety stops or slows substantially from its current three-month annualized growth of near 25%.

M2nsa is growing on a three month annualized basis of 7.7%, which is much stronger than what we saw all summer, but still below the double digit growth of early 2008. M2nsa is the best indicator of how much liquidity the Fed is adding to the system. At present, Fed money adding activities would have to be deemed moderate.

Bottom line: Nothing good is going to happen until the fear in the markets subside, which will be indicated by much slower M1nsa growth (perhaps even steady declines), but we are not there yet.


  1. I think you have the total wrong, it's not 7764.8 (that's the M2 13-week seasonally adjusted) but 1519.6.

    Why do you prefer to look at non-seasonally adjusted numbers?

  2. Thanks, corrected.

    I like to look at the actual amount of money in the system, that is the amount of my that can be out there bidding for goods and services.

    To me looking at seasonally adjusted money numbers is the same as dressing based on "seasonally adjusted" weather.