from the elliot wave letter Prechter
Austrian economics, properly applied,
explains why the money supply has been
falling despite the Fed™s best efforts and
the nearly universal belief that the Fed can
create all the inflation it wants. The money
supply is contracting because the biggest
debt bubble in history has begun to deflate.
This background assessment is buoyed by
the fact that M3 has declined 1.33% since
mid-August on a weekly basis (see chart) and
1.06% since August on a month-end basis
(data courtesyTopline Investment Graphics),
the largest contraction since 1944, 59 years
ago! (The slightest decline in December will
make the overall contraction the largest since
1943,60years ago.)Contrarytoconventional
belief, dramatic interest rate cuts do not
prevent deflation but rather signal its
approach. On October 28, the Fed stated that
itundesirably lowld inflation is i侖the
predominant concern–.lt ƒ Thisiseuphemism
at its worst. There is nothing undesirable
about low inflation; on the contrary, it is a
highly desirable thing. What the Fed fears is
deflation, but it doesn™t want to use the word.
Deflation Š a drop in the money supply
Š is now a reality, yet no one is talking
about it. It™s the monster in the closet. But
with stock prices near recent highs and
economic reports favorable, it™s still daytime
in the eyes of economists. When night falls
along with the stock market, the monster in
the closet will take on a newly ominous
presence. In 2004, deflation will be back in
the news, bigger and badder than ever.
A proper understanding of the effect of
liquidity trends at this point in the Kondratieff
monetary cycle explains why stocks and gold
have been rising together. Increased liquidity
from 2001 to today has found myriad outlets,
from stocks to commodities to gold to real
estate. If my unique take on this situation is
correct, both stocks and gold should be
slowing their ascents as the money supply
begins to fall. As Figures 2 and 3 show, this
is exactly what is happening in both
markets.Asthe liquiditycyclegainsdownside
momentum, these investment classes, along
with real estate and commodities, should
respond by falling in price.
etc etc
his view is not unique however... HO HO HO |
