Tuesday, June 16, 2009

The Recent Economic Data and Why Trend Followers May Get Mauled

The data is now pouring in. The Fed money printing, which started in late September '08 and proceeded through March of this year, is having its impact on the economy.

The latest data out of the Commerce Department is that construction of new homes and apartments jumped 17.2 percent last month to a seasonally adjusted annual rate of 532,000 units.

Applications for building permits, also seen as a good indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

That these type numbers would be kicking in at this time should have been obvious by the end of December '08. That is, obvious to anyone who understands how money printing impacts on the economy.

Everyone who doesn't get the connection, is only now catching on to this up trend in the economy. Put simply, the latecomers are just trend followers.

And, Ben Bernanke may have a big surprise for these trend followers. As I have pointed out, he has slammed the breaks on money growth over the last three months. If he continues the no-growth policy, the trend followers are going to get mauled, as the economy will double dip into trouble.

I have no crystal ball that provides me insight into Bernanke's thinking. I just watch the numbers. Based on what I see, as of now, money should again be out of the stock market. Real estate investors, who are buying long term, and locking in these extremely low rates, will be OK, as the eventual Fed response is likely to be more Fed money printing. But, for short term traders, the current slow down in money supply is something that shouldn't be bucked.


  1. Robert, do you watch the 3-month change in the NSA M2?

  2. Yes, I think it is the best indication of actual money in the system.