First Sign That the Panic Phase May Be Close to Over

We have been closely monitoring M1 nsa three month annualized growth as an indicator of when the panic phase in the markets may end. Once M1 growth slows, it will be a pretty good indicator that this phase may be over., since it indicates that new panic money isn't flowing into cash and demand deposits.

Another indicator to watch is, of course T-bill and T-bond rates. The dramatic drop in these rates is also a measure of panic in the markets. There is no other way to explain 0% T-bill rates. Once these rates start to climb, it will be another sign of reduction in panic.

A third factor is the dollar, in a flight to quality (though in our opinion you have to be mad to think the dollar is a quality source of protection, when the Fed is pumping money at double digit rates). The dollar has been climbing as the global markets collapsed. That is until the last couple of weeks.

The dollar has stopped climbing and now is down nearly 5% since its most recent high.

The best indicators are M1 and Treasury rates, but the renewed dollar decline is certainly a good secondary indicator that we are close to the end of the panic.

FT's John Authers has a solid video presentation of dollar movement over the last 9 months. It is worth watching. Our only disagreement with the video comes near the end where he suggests the problems in Detroit may be responsible for the dollar decline. Not a chance. Foreign exchange markets are much too diversified over numerous industries to be impacted by concerns about Detroit. Note also the strength in the yen against the dollar, this is likely unwinding of the short yen/long dollar carry trade positions.