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Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

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Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#61

Post by siculars »

choxi wrote: post #6

A lot of people say there’s no such thing as asset inflation [1] and I find that very confusing. Hypothetically, if we add $1T to the economy and everyone invests it into stocks, is that not inflation? I guess economists say it’s not, but it feels like a pedantic argument about assets being “overpriced” not “inflated”. I think our current method of measuring inflation against the CPI is nonsense, the basic premise th…

I think a WSJ article would call this "multiple expansion." I lost a lot of coins betting against the market recovery going into the summer of 2020. Because printing free money must have consequences, yes? Turns out I could not have been more wrong. Turns out, all the free money printing around the world has found its way into other assets. Namely, the US Equity markets and BTC.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#62

Post by dragonwriter »

cft wrote: post #38
nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

CPI is determined by M1V , i.e. velocity of M1. Since M1 is already out there, we just have to wait for the V. For now it's parked in the inflated stocks. Most importantly, without high M1, high M1V is not possible.

> Since M1 is already out there, we just have to wait for the V

M1 can change day to day without change of the monetary base by behavior changes, and the Fed can reduce monetary base pulling down on M1 through open market policies. M1 is already out there means little, because it's not fixed.

> Most importantly, without high M1, high M1V is not possible

False. There’s no hard limit on V, so you can arbitrarily high “M1V” with any M1.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#63

Post by jkhdigital »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

On a time scale of decades, you’re absolutely right—the money supply can have very little effect on prices of consumer goods. But... things change. Sometimes abruptly.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#64

Post by chiefalchemist »

code_duck wrote: post #51
xiphias2 wrote: post #34

Earlier quoted context omitted.

My friends mostly care about house / rental prices, not bread or stocks. Rent compared to their salaries is the main thing that they look at when they get a job offer.

Grocery costs don't vary nearly as much regionally as housing, and also are not as significant a percentage of household budget, so that makes sense. Personally I find grocery shopping quite affordable, as I'm sure do most in the HN demographic. However the rate of people experiencing food insecurity in the US was around 12% prior to the pandemic, which shows that grocery costs are a serious concern for many. People…

Grocery costs are a concern? Perhaps. But I'd say that's driven by housing costs. That is, you can skip meals but a least (or property taxes) is a non-toggling commitment. When in doubt, the rent gets paid.

There's also the cost of healthcare, or the financial repercussion of not having coverage.

People are food insecure. It's freightening. But the root issue is more than food.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#65

Post by fny »

eloff wrote: post #43

Here's the S&P 500 in "real money" that is, gold, over the past century: https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart I was looking at that earlier today to try to get a feel for if the stock market is really at record highs, or if it's just the Dollar and other major currencies that are just at record lows. Note, that massive crash on the chart after 1971 is the US abandoning the gold standard (where y…

But this isn't accurate either. Gold is highly correlated with interest rates. Why would I want to hold a rock that yields nothing if there are bonds that yield a real return?

As of now we haven't hit a regime of negative real yields on long dated treasuries in the US. After being at ZIRP for decades with new inflation fears, I'd bet gold will continue to be punished as yields rise, so you may never see that same signal from Y2K.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#66

Post by jkhdigital »

ItsMonkk wrote: post #49
swixi wrote: post #32

Earlier quoted context omitted.

> Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V A couple questions because I don't understand this very well. Do we have an idea how much is actually sitting in a bank account vs being put into the market? And, if people put money into stocks and park it there, wouldn't…

You can't just put it into the market. There are two sides to every transaction. You give money, they give stock, they get money, you get stock. When more money enters the economy than stuff is created, the price that the person willing to sell/price you are willing to buy that stock for goes up.

Thank you for saying this, because it is incredibly easy to overlook.

However, we must also remember that dollars are effectively debt—banks create them by loaning money. So while it is true that dollars cannot be “parked” in assets since there are two sides to every transaction, if the seller goes on to pay down debt with the proceeds then the money in circulation will decrease.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#67

Post by CyberRabbi »

bredren wrote: post #45
CyberRabbi wrote: post #16

Earlier quoted context omitted.

The point isn’t that people with assets should care. The point is that people who hold dollars should care because eventually they’ll need to convert those dollars into assets.

It is this, but there's a twist. Presume a person with assets sees information like this and in combination with other factors causes them to agree a dramatic market pullback (on the scale of last year's but worse) is likely and soon. The next logical step would be to enjoy all of the gains so far and sell out from the risk of the drop, and even after a nominal loss of value rebuy. What I've seen is rather than deal…

Hmm I don’t see a market pullback happening any time soon. Honest question, Why would this information lead one to believe that? This information leads me to believe that the market is reasonable priced, given that it suggests the recent price increase is not a bubble but rather due to dollar devaluation in the asset marketplace.

All other things equal, unless they start burning money I expect prices to grow or remain stable.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#68

Post by cft »

dragonwriter wrote: post #62
cft wrote: post #38

Earlier quoted context omitted.

CPI is determined by M1V , i.e. velocity of M1. Since M1 is already out there, we just have to wait for the V. For now it's parked in the inflated stocks. Most importantly, without high M1, high M1V is not possible.

> Since M1 is already out there, we just have to wait for the V M1 can change day to day without change of the monetary base by behavior changes, and the Fed can reduce monetary base pulling down on M1 through open market policies. M1 is already out there means little, because it's not fixed. > Most importantly, without high M1, high M1V is not possible False. There’s no hard limit on V, so you can arbitrarily high “…

> False. There’s no hard limit on V, so you can arbitrarily high “M1V” with any M1.

There's definitely a limit on the number of transactions. V ~ N_transactions_per_day * M1. With the fixed M1 you can up V only by upping N_transactions_per_day. Am I missing something?

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#69

Post by jkhdigital »

JMTQp8lwXL wrote: post #35
nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

> Money supply does not determine the prices as we have learned over last two decades. I don't think we can just accept this as fact, based on two decades evidence. The Phillips curve held for much longer for two decades, until it didn't. 2 decades of verified observation cannot be extrapolated into an infinite future.

Especially when there is also centuries of past evidence that conflicts with this assertion

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#70

Post by dragonwriter »

ItsMonkk wrote: post #46
deanmoriarty wrote: post #12

I don’t understand this. My current portfolio is, say, 30 times my yearly living expenses. All I care about is that it will continue to grow in a way that stays at/above this ratio, so I will be able to retire early. The pace at which my yearly expenses inflate is much more correlated to CPI than money supply. My expenses haven’t changed much between 2019, 2020 and 2021 (projected), despite the large money printing,…

Sustainability. The M2 is growing because interest rates are dropping. But interest rates are at 0, so they can't drop anymore. So there is reason to believe that we can not sustain our current trajectory any longer.

> But interest rates are at 0, so they can't drop anymore

Interest rates are not at zero [0], and interest rates, and their targets, can go negative. [1]

[0] target range is currently 0-0.25%, actual is 0.08%: https://apps.newyorkfed.org/markets/autorates/fed%20funds

[1] https://www.investopedia.com/terms/n/negative-interest-rate-...

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