U.S. Money Supply Plunges to Levels Unseen Since the Great Depression While Housing Index Dives
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The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The M3 figures – which include a broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. "It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015. Full story
telegraph.co.uk
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Well, we can’t say we did not warn everyone; for a long time now we have been stating that this recovery is all smoke and mirrors. Worse yet we proved that the Dow has not put in one single new high in the past 52 weeks in our article titled Dow’s new highs, all lies. When priced in other commodities such as Gold, the Dow is in a clear down trend.
We also stated that the housing recovery was all humbug and unemployment levels would remain at lofty levels for years to come. High unemployment coupled with a terrible housing market is cause for concern. The housing market index dived 17 points indicating that the small uptick was mainly due to the $8000 tax credit which has now expired.
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The housing market index dived to 17 in June from 22 in May, the NAHB reported.
All three components of the index fell in June, and home builders were more discouraged in all four regions of the country. "The recovery in home building will be slow due to the elevated level of unemployment, tight credit conditions, high rates of homeowner and rental vacancy rates and the high level of homes available for sale," wrote Gary Bigg, an economist for Bank of America Merrill Lynch. The index was lower than the 21 that was expected by economists surveyed by MarketWatch, and was the lowest since it hit 15 in March. The five-point drop was the most since November 2008. full story
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If one combines the above factors with a rapidly contracting M3 money supply, we have the perfect recipe for a disaster. Double dip recession is not what these chaps should be worrying about; the term they should be thinking of is depression.
Traders can consider using very strong rallies to open up positions in SKF, and SRS or short the following stocks (one could also purchase put options) Beazer Homes (BZH), Lennar Corp. (LEN), DR Horton (DHI), etc.
Where do we people go if not towards the perfection of our own illusion? -- Sorin Cerin,philosopher
Disclosure: We have no positions in the investments mentioned above
About the author: Sol Palha Sol Palha is a self-taught Student of the Markets, having widely read conventional and non-conventional texts on all aspects of technical analysis and market timing. He has been studying the markets for over 16 years. He combines mass psychology, technical analysis and a new field of study that... More
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