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!
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: