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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (44883)	11/6/2005 2:30:01 PM
From: russwinter	Respond to of 110194

Shostak's reference to false activities is a good one. I think the key is separating exactly what it is you want a barometer of. If you want to get a sense of how Joe Sixpack and consumers are doing, focus mostly on M1, that's daily life "bill paying" money supply, and it's been dormant. research.stlouisfed.org I think M2 measures real estate Bubble activity. As Shostak implied, money (credit) is printed out of thin air everytime some Bully Lucky Lotto sells (to a new debtor) a property he bought at $150,000 a decade ago, at $400k today. Proceeds from Lucky Lotto transactions shows up in M2. In otherwords when you sell a property to someone he buys on credit, most of the proceeds are not put into checking accounts to make daily life payments. They instead go into longer transaction deposits like CDs, or funds loaded with MBS, ABS. But to get the full flavor of this I think one should separate daily life M1, and use the non M1 component of M2, not M2 alone (which includes M1, and we are cuing on something else: Lucky Lotto), because there is a big distinction. It's been rising, but sputtering: research.stlouisfed.org That one is key, when it flattens the housing as "false wealth" machine will come unravelled. When it drops there will be no denying a Bust! M3 and beyond picks up all the Pig Man Bubble "speculative leveraged assets", all the paper and mortgage "assets" that is supposedly backed by payment flows from Joe Six and "assets" (almost all overpriced today, and in need of a big "correction"). Your called for "bond rally" and "lower interest rates" merely expands the value of securities used in these broader false economy (what I've called synthetic economics) money supply measures. We would need to see the opposite for broad measures to flatten or decline. It could grow like gangbuster's right up the moment of a Bust, because what's to stop speculation? Therefore I think it's the cart after the horse (which is M1, and non M1 M2) measurement. M1 and non M1 M2 measures the ability to service M3, and should be watched like a hawk first. M3 will collapse rapidly in a Bust, because that's just a matter of fact event when people fail to make servicing payments, the "value" is extinguished.