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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

#71

Post by lotsofpulp »

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…

> 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.

My next logical step would be to assume the government will do whatever is necessary to pump those equity values back up, just like they did last year in Mar/Apr.

So unless you think you can time it so that you sell when asset prices drop, and buy before the government pumps them back up, the logical step would be to stay the course, and keep your wealth in inflation resistant broad market indices.

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

#72

Post by jkhdigital »

dragonwriter wrote: post #31
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…

> 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 decades. That's assuming, contrary to the motivation for loose monetary policy, that there wouldn't have been deflation without it. It's not loose money produces low velocity but loose money as a reaction to low velocity.

All this talk of velocity... starting to think we’ve reached terminal velocity for the consumption-based economy. That is, loose money is truly “pushing on a string” for advanced economies.

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

#73

Post by braveyellowtoad »

xiphias2 wrote: post #34
marricks wrote: post #22

Earlier quoted context omitted.

The general public cares a lot more about the price of bread than the price of Google's stock, so I'd say economists are reasonable on this one. If and when that money injection moves around to affect the price of bread will be quite important though.

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.

Technological advances continue to increase the productivity of agricultural output both in “the first world” and lesser developed countries.

In this way, I expect the prices of consumer goods like foodstuffs to continue to decrease over time.

We are living with economic theory that was posited when the most advanced computer was a slide rule.

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

#74

Post by fny »

dragonwriter wrote: post #70
ItsMonkk wrote: post #46

Earlier quoted context omitted.

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-...

The fed funds rate are not interest rates writ large however. This is the interest rates banks pay to borrow reserves over a short term. The markets for longer dated securities (i.e. 10Y and 30Y) more accurately reflect interest. The 10 year is currently at 1% and the 30 year at 2%.

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

#75

Post by jkhdigital »

nabla9 wrote: post #47
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.

That's kind of thinking takes quantity theory of money too seriously (axiomatically). Instead of looking if that has been true, you just assume that it must be true.

Except that fiat money can be analyzed axiomatically, because it is essentially just numbers in a balanced double-entry ledger.

The difficult part is in translating theorems into practical knowledge about the economy, but just because this is difficult doesn’t mean that the axiomatic approach is wrong.

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

#76

Post by jkhdigital »

fny wrote: post #65
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 sig…

Gold has no yield (more like negative yield, due to carrying cost)... but also has no counterparty risk. Gold is an interesting option when real yields suck, but the real purpose is to preserve some semblance of wealth when the sovereign becomes insolvent.

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

#77

Post by jkhdigital »

ItsMonkk wrote: post #56
nanis wrote: post #19

Earlier quoted context omitted.

Friedman was right when he said "inflation is always and everywhere a monetary phenomenon." Assume doodads are $1 today. If tomorrow money supply is doubled, they will be $2. A reasonable definition of the intrinsic value of a stock market index is the discounted net present value of all the profit streams of all the firms included in it. If it is 100 today, and the money supply doubles, it will be 200. What good are…

> Assume doodads are $1 today. If tomorrow money supply is doubled, they will be $2. If you double every persons account, yes. If you do it through interest rates, you need to pay attention to the Cantillion Effect. The Cantillion Effect states that money flows from people who have it to things that those people want to buy. If you give money to rich people who have already reached capped consumption, they won't then…

And the more they print, the more wealth inequality there will be... unless they go straight helicopter money (although that would require substantial legislative changes).

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

#78

Post by eloff »

nabla9 wrote: post #50
eloff wrote: post #37

Earlier quoted context omitted.

I find the "Internet economics" argument more compelling than your argument that "Money supply does not determine the prices". It's intuitive. You increase the amount of money chasing assets, asset prices go up. It's not affecting the price of milk or electronics. But look at land, housing, tuition, medical, stocks, bonds, and gold.

I know. That's the tragedy if internet economics. It's incredibly natural and intuitive and wrong.

Its not your job to convince me, but you've been unsuccessful at it. I care what the truth is, not for any particular side, so I should be easier to convince than many.

Why would increasing monetary supply not cause inflation? I'm aware there is a group in macroeconomics that believes that, but I think they're crazy. Do you have anything to support your position?

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

#79

Post by epr »

jkhdigital wrote: post #66
ItsMonkk wrote: post #49

Earlier quoted context omitted.

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.

> However, we must also remember that dollars are effectively debt

They are debt in the most literal sense possible. They are listed as liabilities in the fed's balance sheet. The "note" in "Federal Reserve Note" written on every dollar bill is referring to the legal definition. It's a promise to pay.

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

#80

Post by mguerville »

siculars wrote: post #61
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.

Same, I got beat up on my bearish positions, but I see it as expensive insurance that I took in case my bullish exposure (job, home, 401k,etc) so I tell myself I am happy the metaphorical house didn’t burn down even though I bought a lot of insurance in case it would
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