U.S. M2 money supply hadn't done this in nine decades

[serendipity]

It had been 90 years since we last witnessed a notable shift in money supply.

It's been nothing short of a banner year for Wall Street. In October, the ageless Dow Jones Industrial Average (^DJI -0.28%), benchmark S&P 500 (^GSPC 0.25%), and growth-powered Nasdaq Composite (^IXIC 0.81%) celebrated their two-year anniversary of the current bull market. Following the election of Donald Trump for a second (nonconsecutive) term as president, all three stock indexes soared to record-closing highs.

Despite these phenomenal returns, stock market corrections and bear markets are a normal and inevitable part of the investing cycle.

Although there's no predictive tool or forecasting metric that can, with concrete accuracy, forecast short-term directional changes in Wall Street's major stock indexes, there are a small number of events and data points that have strongly correlated with sizable moves higher or lower in the Dow, S&P 500, and Nasdaq throughout history. Investors occasionally lean on these forecasting tools in an attempt to gain an edge.

While a couple of valuation metrics are at or near all-time highs, which has historically not been good news for Wall Street, the bigger concern might just be an economic data point that has a flawless track record of signaling big moves lower in stocks, when back-tested for more than 150 years.

The two most-common measures of U.S. money supply are M1 and M2. The former accounts for cash and coins in circulation, along with travelers' checks and demand deposits from a checking account. The best way to think about M1 is cash that can be spent at a moment's notice.

Meanwhile, M2 money supply takes everything from M1 and adds in money market accounts, savings accounts, and certificates of deposit (CDs) below $100,000. This is still money that consumers have access to and can spend, but it requires more effort to get to. It's also the specific money supply measure that's the cause of concern for Wall Street.

U.S. Money Supply Recently Did Something Not Observed Since the Great Depression -- and It Historically Signals a Big Move in Stocks | The Motley Fool

It had been 90 years since we last witnessed a notable shift in money supply.

www.fool.com

 

[serendipity]

This could well be considered part of Biden's economic legacy in the near future. We will see but the portents are not good . It would be a refreshing change for somebody knowledgeable to explain their thinking on the matter.

 

[serendipity]

It's been nothing short of a banner year for Wall Street. In October, the ageless Dow Jones Industrial Average (^DJI -0.28%), benchmark S&P 500 (^GSPC 0.25%), and growth-powered Nasdaq Composite (^IXIC 0.81%) celebrated their two-year anniversary of the current bull market. Following the election of Donald Trump for a second (nonconsecutive) term as president, all three stock indexes soared to record-closing highs.

Despite these phenomenal returns, stock market corrections and bear markets are a normal and inevitable part of the investing cycle.

The reason M2 is typically an off-the-radar data point is because U.S. money supply had been growing without notable disruption for nine decades. As the U.S. economy expands over time, it's not a surprise that more capital has been needed to facilitate transactions. A steadily rising money supply is indicative of an economy with a solid foundation.

But in those exceptionally rare instances throughout history where M2 money supply has notably declined from its all-time high, it has foreshadowed big-time trouble for the U.S. economy and stocks.

 

[Walt]

A shrinking M2 means a danger of deflation, do you think there is a danger of deflation?

The reality is that trump created extremely inflationary conditions, and the moderates in government have reduced that greatly.

 

[T. A. Gardner]

The one I expect to happen sometime soon is the collapse of the blockchain, cryptocurrency market. At some point, there won't be enough computing power on the planet to keep it going.

So, like a pyramid or Ponzi scheme, at some point it's going to collapse, and when it does it'd be best to be nowhere near it in terms of investment.

 

[Taichiliberal]

Blah, blah, blah ... let's ignore 24 years of reaganomics, or the Wall St. debacle, the Savings and Loans scandal, banks being bailed out because they are "too big to fail", the infamous Mortgage loan scandal.

You do all that, and the blather Tommy the Dip parrots makes sense. Otherwise ....

 

[Walt]

The one I expect to happen sometime soon is the collapse of the blockchain, cryptocurrency market. At some point, there won't be enough computing power on the planet to keep it going.

That is not how it works. The difficulty of a block is adjusted up or down to have the entire network produce one block every 10 minutes. That means if miners are not making enough money to run their equipment, or even the world runs out of computing power, the difficulty will be adjusted down.

 

[Earl]

A shrinking M2 means a danger of deflation, do you think there is a danger of deflation?

The reality is that trump created extremely inflationary conditions, and the moderates in government have reduced that greatly.

That is not how it works. The difficulty of a block is adjusted up or down to have the entire network produce one block every 10 minutes. That means if miners are not making enough money to run their equipment, or even the world runs out of computing power, the difficulty will be adjusted down.

​

Walter:​

"trump is a child rapist. We all know it."

​

George Stephanopoulos and ABC News to pay President Trump $15 million and apologize to him.​

You might want to rethink calling Trump a child rapist," Walter.

Poor, poor, poor Walter.