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Friday, 10 January 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 30 December 2013

As this was the final week for 2013, here is a short history lesson of changes in the short version of the true money supply since 1981 before discussing the weekly data:



Some notable observations are:
  • The money supply hit another new high in 2013, a regular occurrence every single year since 1982 except for 1989, 1994 and 1995.
  • The money supply expanded by US$ 605.7 billion, or 6.5%, in 2013, the lowest year on year growth rate since 2007 and lower than the 7.9% long term average since 1981. In US$ terms, it was the fifth biggest expansion in the money supply based on data since 1981 (2009-2012 were all higher).
  • The yearly growth rate for 2013 was cut almost in half compared to 2012 (from 11.2% to 6.5%).
  • On average, the money supply has expanded 11.5% per year during the last five years, the 5th highest based on data going back to 1985.
  • During the first four years of the current decade, the money supply has expanded by an average of 10.9%. This was higher than the 8.4% during the first four years of the 1990s, but lower than the 11.6% yearly average during the first four years of the 2000s.
  • During the period 1981 to 2013, the money supply expanded a total of 1,164.4%, the equivalent of about 8.3% a year (geometric average). The money supply was hence 12.64 times higher in 2013 than it was in 1981!
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Back to the weekly data. The short version of the Austrian True Money Supply (SVTMS) for the U.S. increased by 0.19% (10.34% annualised) during the most recent week ending 30 December to reach US$ 9.8936 trillion calculated from monetary statistics just released by the Federal Reserve



The 1-year growth rate took a bit of a tumble this week, falling from 7.01% last week to 6.52%. This was the lowest year on year (YoY) growth rate since week ending 24 November 2008 and was 2.41 percentage points, or 41.6%,  lower than one year ago. 




The 5-year growth rate (annualised) also continues to fall and at 11.21% was the lowest since week ending 10 September 2012. The data continues to hint that the 5-year growth rate might have peaked or is close to peaking. Here's a bit of a technical observation: This cycle in the money supply expansion has already started resembling that of the previous cycle. Based on the experience last time around when the percentage points change in the 5-year growth rate dropped below 0 for the first time in early 2006, and if money supply growth continue to fall, the stock market might be close to peaking. For a simple reason: it's running out of money supply growth. I'll report on this development in this weekly report on a regular basis going forward as well. 



As the table above shows, all growth rates, except for the 7- and the 20-year, are lower than the were a year ago and many (1 week to 3 year) are substantially lower. For example, the 39 week growth rate (annualised) is 4.98 percentage points lower than it was a year ago. 

In general therefore, money supply growth continues to fall pretty much across the board. Combined with a bubbling U.S. stock market, the decline in the growth rates of the money supply pose a significant risk for long term equity investors. 


Finally, readers of this weekly report (here) will be aware that the money supply data applied is a short version of the Austrians True Money Supply. This short version was developed simply because some of the items included in the full version are only reported on a month basis. In addition, these additional money supply figures are relatively small (click the top link for a detailed explanation). Anyway, to reassure you the difference is negligible, here is an update as of November 2013 based on monthly data for both the short and the full version: