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S&P500 Normalized with M2
31–39 of 39 posts
Re: S&P500 Normalized with M2
#32Earlier quoted context omitted.
Why not? In the long run M2 is basically the same as inflation.
M2 growth relative to the growth of size of the economy is basically the same as inflation, in the Milton Friedman Chicago school. So if M2 growth and the S&P 500 are similar, that means that the S&P 500 is fairly well correlated with the size of the economy. Quelle surprise!
Hmm. Looks like M2 growth can be seen as GDP growth + excessive money supply (inflation) then. That is, whenever M2 decouples from GDP, then it most likely will convert to inflation.
Re: S&P500 Normalized with M2
#33Why on earth would you divide the market cap of the 500 largest companies in the US by the money supply? It's a completely arbitrary and silly thing to do. Why not divide the number of cheese wheels by the diameter of the moon? This chart isn't mind-blowing, it's straight-up meaningless. [edit] Also note the S&P 500 isn't even a consistent numerator, it's an index whose constituent companies are replaced over time at…
Just to be clear, do you believe there is a connection between money printing and decreased purchasing power?
Re: S&P500 Normalized with M2
#34It would be more helpful to compare S&P 500 vs CPI rather than M2. It's purchasing power that matters to most investors, not the comparison to how much money exists. S&P 500 gained ~40% since January 2020, and CPI gained ~18%. Even better would be comparing to the total stock market rather than S&P 500. Using something like DWCF or VTSAX
The cpi is a bad metric. It does not accurately capture all the cost increases we have seen since covid.
Feel free to use PCE or whatever else instead.
There's alternatives, and trust me, one of them addresses your gripes.
Unless your complaint is very specific, assume you didn't just intuitively out-think a bunch of PhDs whose job is thinking about this
Re: S&P500 Normalized with M2
#35It would be more helpful to compare S&P 500 vs CPI rather than M2. It's purchasing power that matters to most investors, not the comparison to how much money exists. S&P 500 gained ~40% since January 2020, and CPI gained ~18%. Even better would be comparing to the total stock market rather than S&P 500. Using something like DWCF or VTSAX
The post seems to be implying that increase in money supply is synonymous with inflation, but one of the main reasons we print more money is actually to keep up with growth.
Re: S&P500 Normalized with M2
#36Why on earth would you divide the market cap of the 500 largest companies in the US by the money supply? It's a completely arbitrary and silly thing to do. Why not divide the number of cheese wheels by the diameter of the moon? This chart isn't mind-blowing, it's straight-up meaningless. [edit] Also note the S&P 500 isn't even a consistent numerator, it's an index whose constituent companies are replaced over time at…
Just to be clear, do you believe there is a connection between money printing and decreased purchasing power?
Answered in detail here: https://news.ycombinator.com/item?id=36881502
Re: S&P500 Normalized with M2
#37Earlier quoted context omitted.
A common narrative lately is that a lot of stock prices are highly correlated with money supply. E.g. The only reason 2021 bubble happened is because the FED printed trillions of dollars. I wouldn't say its completely arbitrary given this has been a common discussion point. No opinions on whether it has meaning, but wanted to add the relevance.
Just because it's a common talking point doesn't make it arbitrary. Iirc, the fed also backstopped bonds and bought some stock
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Re: S&P500 Normalized with M2
#38Earlier quoted context omitted.
Just to be clear, do you believe there is a connection between money printing and decreased purchasing power?
Answered in detail here: https://news.ycombinator.com/item?id=36881502
"Inflation is caused when the money supply in an economy grows at faster rate than the economy’s ability to produce goods and services."
I would rather have (monetary) deflation when then economy grows. Then the money I save in would increase in purchasing power. If I save in the money described in the quote above, I don't participate in the growth.
Re: S&P500 Normalized with M2
#39Earlier quoted context omitted.
Answered in detail here: https://news.ycombinator.com/item?id=36881502
"Inflation is caused when the money supply in an economy grows at faster rate than the economy’s ability to produce goods and services." I would rather have (monetary) deflation when then economy grows. Then the money I save in would increase in purchasing power. If I save in the money described in the quote above, I don't participate in the growth.
That quote is specifically addressed, I went into detail about how that only applies in steady-state, and that reality isn't a steady-state making this, and (MV = PQ) and incomplete model.
> I would rather have (monetary) deflation when then economy grows. Then the money I save in would increase in purchasing power. If I save in the money described in the quote above, I don't participate in the growth.
So you want a risk-free return for doing nothing. Of course, who wouldn't. Elementary school kids want pizza every day for lunch. Why should you participate in the growth of the economy while risking literally nothing, in exchange for literally no input of your own? Just because you got there "first"? That's just "UBI for me, and everyone else can get rekt."
All the worst economic periods in history were deflationary, and if you believe in the Philips curve, then maximum employment and prosperity is achieved at a low, positive rate of inflation.
Your job in the economy is to productively allocate your excess capital. Under your mattress in exchange for positive real return at no risk to you is not a productive allocation. The whole point of inflation is to discourage that behavior. So I'd say it works.
Either way, none of this has anything to do with this silly graph.