Comments on M3 growth reported for January...
Taken from Mauldin's latest:
news.goldseek.com
For a quick and solid analysis of the money supply growth problem, we turn to Lacy Hunt, of Hoisington Asset Management in Austin, Texas who is quoted in thoughtful welling@weeden. (http://welling.weedenco.com)
"Dr. Hunt, points out that M2 and M3 contracted in the fourth quarter at the fastest rates since the end of World War II (6.8% for M3), and that it's even more alarming that the six-month change in M3 hovers close to zero, since sustained stagnation in the aggregates 'foreshadows slower economic growth.' The last time, he added, that both money supply measures had negative growth rates was in 1992-1993--not exactly a time of great economic performance, as reflected in then - Candidate Clinton's slogan, 'It's the economy, stupid.'
"Dr. Hunt warns, too, that 'sharp contractions in the money supply in a low inflationary environment can be hazardous to economic health. After all, disinflation is too little money chasing too many goods. And the last time money growth contracted, inflation rates slowed markedly.' With the core PCE deflator showing a yearly gain of just 0.8%, he warns, inflation doesn't have far to fall before turning into deflation. In fact, Dr. Hunt adds, 'while the drop in the Ms may be a reaction to the rise in real interest rates in the second half of '03, it may also be an early sign that the Fed is now 'pushing on a string' in the words of Keynes. Which would mean that demand for credit is falling because there is already too much debt and borrowers are uncomfortable with this much leverage--thereby raising the specter of debt deflation.
"What's more, advised Dr. Hunt, don't breathe easy because M3 rebounded in January, apparently growing at close to an 11% annual rate-because an accounting change (FASB's FIN 46, which basically makes banks consolidate the assets and liabilities of special purpose entities) is messing up the comparability of the money supply stats. It's not something the Fed has been advertising, Dr. Hunt says. He had to notice a footnote in the stats, and Ried Thunberg's Bill Jordan had to chase down Fed officials for a clarification of some muddy reporting, but when all is said and done, this pair of gimlet-eyed Fed watchers reports that rather than rebounding sharply in January, M3 was essentially flat, or maybe up 1%. Not a bullish portent." |
