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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

#91

Post by lumost »

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 suspect that the CPI is a good measure of how much social unrest an inflationary event is likely to cause in the short term. One may decry the rich getting richer at the expense of everyone else but one is unlikely to start a revolution unless you yourself feel poorer.

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

#92

Post by vijayr02 »

tylerhou wrote: post #82
jkhdigital wrote: post #76

Earlier quoted context omitted.

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.

The counterparty risk is that when the sovereign becomes insolvent, people won’t want to buy your gold because they’d rather have food and water.

I think the risk when the sovereign goes insolvent is a bunch of people with guns turn up and take your gold away. Sometimes the insolvent state and the people with the guns may even be the same.

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

#93

Post by lumost »

tylerhou wrote: post #83
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,…

You shouldn’t care. This chart is making up claims of “obvious” inflation (despite no evidence) to push BTC and other cryptos. (That’s why the dropdown has crypto coins.) Also, the person doesn’t really understand monetary policy or macroeconomics — inflation is measured by changes in the price of a currency. M1 only measures supply. The other half of the price equation (that is missing from this chart) is the demand…

Measuring the intrinsic demand for a currency is an exceptionally difficult problem and prone to cognitive bias in terms of which factors are weighted and how it's calculated.

Measuring the money supply is a trivial matter - if we observe a radical change in the money supply which correlates to asset price increases it's reasonable to question if our understanding of the economy is correct.

This may be in actionable information even if you buy the argument however. Holding assets while they inflate is the best move and at 0% interest rates there is no alternative to holding assets.

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

#94

Post by mawise »

tylerhou wrote: post #52
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…

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to demand as well. In times of high demand for dollars (like right now), the supply of money (the M1) needs to increase…

> Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to demand as well.

I was thinking exactly this. Is there any reasonable measure economists use for the demand for dollars? Other than I suppose inferring it from CPI and M1...

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

#95

Post by alexpetralia »

tylerhou wrote: post #52
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…

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to demand as well. In times of high demand for dollars (like right now), the supply of money (the M1) needs to increase…

Can you expand on the "high demand for dollars"? Is this from foreign investors in the form of FDI? Do you mean domestic investors (in which case I'd ask if borrowers and stock issuers are really demanding dollars, as opposed to merely accepting supplied dollars at very cheap rates)?

Edit: According to this link, it would appear the foreign demand for dollars has declined? https://www.marketwatch.com/investing/index/dxy

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

#96

Post by zz865 »

dragonwriter wrote: post #58
zz865 wrote: post #25

Earlier quoted context omitted.

> A lot of people say “there’s no such thing as asset inflation” [1] and I find that very confusing. I think most people agree there is a lot of asset inflation. Your link doesn't match your quote either.

> I think most people agree there is a lot of asset inflation. Yeah, “there is no asset inflation” doesn't seem to actually be a common belief. “Asset inflation is different in kind than consumer price inflation and not what normal people discussing inflation care about” is more common. I'm not sure why monetarily-driven asset inflation would be an issue at all, unless one expected the driving monetary force to not m…

> I'm not sure why monetarily-driven asset inflation would be an issue at all,

Its been one of the main causes in inequality and unaffordable house prices so is very important. It also makes the economy vulnerable to big drops in prices which could/will happen.

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

#97

Post by lumost »

atombender wrote: post #30
YuriNiyazov wrote: post #3

Earlier quoted context omitted.

The claim is that there is an asset bubble. In other words, stocks and real estate are being inflated, whereas the products that constitute the traditional measure of inflation (basket of goods with bread milk and eggs in it) are not. This attempts to show the “real” inflation so to speak.

CPI does show significant inflation [1] among things like dairy (3.8%) and meat/fish (5.1%). But it's offset by lower energy prices and airline fares. As a result, the overall increase from Jan 2020 to Jan 2021 was just 1.4%. [1] https://www.bls.gov/news.release/pdf/cpi.pdf

TBH the CPI index has had an air of funkiness for the last 2 decades. In the run-up to the subprime crises the measure was altered to use "rental equivalent" to avoid factoring in the increase in real real estate prices.

There were interesting arguments for this change of course, and pages of economic research. But the whole thing reeked of finding a justification for a foregone conclusion.

Ultimately there are many factors the CPI simply cannot include, or due to the lack of ground truth can be argued away. If tomorrow real estate prices 10x'd but this price change never made it to residential rents then CPI wouldn't budge. If every farm in the US shuttered due to commercial real estate shooting up 10x but consumers could still import food the CPI wouldn't budge.

Which ultimately goes to say that the use of CPI as the GDP deflator in monetary theory is arbitrary. Treating it as a gold standard measure of inflation risks ignoring inflation in other prices (and in turn systematically miss-estimating GDP).

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

#98

Post by eldavido »

alexpetralia wrote: post #95
tylerhou wrote: post #52

Earlier quoted context omitted.

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to demand as well. In times of high demand for dollars (like right now), the supply of money (the M1) needs to increase…

Can you expand on the "high demand for dollars"? Is this from foreign investors in the form of FDI? Do you mean domestic investors (in which case I'd ask if borrowers and stock issuers are really demanding dollars, as opposed to merely accepting supplied dollars at very cheap rates)? Edit: According to this link, it would appear the foreign demand for dollars has declined? https://www.marketwatch.com/investing/index/…

Google the term "liquidity preference". It's generally understood to be a function of real GDP and interest rates. GDP up = more demand for currency to be able to transact. Lower rates = holding cash has less opportunity cost (there are fewer opportunities to invest in other things with higher yield).

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

#100

Post by alexpetralia »

eldavido wrote: post #98
alexpetralia wrote: post #95

Earlier quoted context omitted.

Can you expand on the "high demand for dollars"? Is this from foreign investors in the form of FDI? Do you mean domestic investors (in which case I'd ask if borrowers and stock issuers are really demanding dollars, as opposed to merely accepting supplied dollars at very cheap rates)? Edit: According to this link, it would appear the foreign demand for dollars has declined? https://www.marketwatch.com/investing/index/…

Google the term "liquidity preference". It's generally understood to be a function of real GDP and interest rates. GDP up = more demand for currency to be able to transact. Lower rates = holding cash has less opportunity cost (there are fewer opportunities to invest in other things with higher yield).

This appears to be a theoretical term. Is there any empirical chart that demonstrates this, or more generally, "money demand"?
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