Saturday, 8 June 2013

U.S. Money, Credit & Treasuries Review (as of 29 May 2013)

The U.S. Monetary Base expanded by USD 89.1 billion (2.88%) on two weeks ago for the bi-weekly period ending 29 May, leaving the base 18.14% higher than the end of last year and 20.11% higher than one year ago. At USD 3.1791 trillion it is the highest base ever reported (as has become customary on a bi-weekly basis due to QE Infinity).

The M1 Money Supply increased 3.40% on two weeks ago, but has contracted 2.54% from the record high   USD 2.6057 trillion reported four weeks ago. Compared to same period last year M1 is up by 11.51% and has increased 2.22% this year compared to the end of last year. The average year on year (YoY) growth rate during the last six weeks is 11.79%, which is 0.74 percentage points lower than the average during the last 52 weeks indicating a decline in the M1 growth rate.

The M2 Money Supply declined 0.35% on two weeks ago, was up 6.95% on the same period last year and remains largely unchanged from the end of last year (up 0.14%). The 6.94% average YoY growth rate during the last six weeks is 0.39 percentage points lower than the 52 week moving average and the average so far this year clearly suggesting a modest slow down in the growth rate.

Bank Credit for the week expanded 3.66% on the same period last year, but is up only 0.71% this year compared to the end of last year. The YoY growth rate is slowing down quite substantially as the six week average is now 1.13 percentage points lower than the 52 week moving average.

The longer term trends, as measured by 12 month moving average YoY growth rates, show that M1, M2 and Bank Credit are growing substantially (especially M1), but at declining rates and that the growth rate for M2+IMF+LTD (see definition in table below) is gathering pace.

Perhaps the most interesting development during the previous two weeks is the climb in the 10-year treasury yield which closed the week on 2.01%, up a not insignificant 17 basis points on two weeks ago. The spread between the 10- and the 1-year treasury yield widened by 16 basis points as the latter only increased by 1 basis point. The spread is currently 189 basis points, substantially higher than the long term average of 147 basis points (series starts in 1984), 36 basis points higher than the same period last year and 26 basis points higher than the end of last year. The yield curve, as measured by this spread, has therefore steepened.

Two weeks ago in this bi-weekly report we wrote,
The declines in the growth rates for both M2 and bank credit are, as stated before, important to the extent that money supply and credit help drive stock prices (e.g. see here and here). Paying close attention to the growth rates in the two is perhaps especially important now as we believe the U.S. stock market is expensive in a historical perspective. Readers who are stock market investors can take a look at the following reports (more reports are available at both this website and the, just search for "stock market"):
Yields hit Five Year Low: 10-year Average Earnings- and Dividend Yields, S&P 500 (as of 7 May-13)
Approaching Bubble Territory: Wilshire 4500 to GDP Ratio Hits New All-Time High!
S&P 500 at Record Highs...and so is Margin Debt! And Implied Volatility is back near its Low...
Monetisation on steroids
Equity Risk Premiums (ERP) and Stocks: Bullish or Bearish Indicator
The same still applies of course. You can view the latest valuation of the S&P 500 index here: 

The Spread Drops as Treasury Yields Rise: 10-year Average Earnings- and Dividend Yields, S&P 500 (as of 4 Jun-13)

1 comment:

  1. I respond that monetization on steroids has caused the death of credit, money and wealth. Bond vigilantes have called the Interest Rate on the US Ten Year Government Note, ^TNX, higher to 2.16%. And currency traders have successfully sold Major World Currencies, DBV, and Emerging Market Currencies, CEW, driving them lower. The Milton Friedman Free To Choose Floating Currency System has failed, as currencies are no longer floating, they are sinking. Debt deflation, that is currency deflation, currency volatility, unwinding currency carry-trades, and the sale of Junk Bonds, JNK, have turned Nation investment, EFA, and Small Cap Nation Investment, IFSM, as well as World Stocks, VT, strongly lower. The banking system as it is has been known is starting to collapse, on the collapse of Aggregate Credit, AGG.