Jason Zweig’s “The Bull Market Isn’t As Big as You Think” in The Wall Street Journal nicely illustrates how the stock market may not be as disconnected from economic reality as many suspect. However, the piece misses the monetary elephant in the room.
Since the introduction of Quantitative Easing (QE), value investing only outperformed growth strategies during four brief moments – as measured by S&P Value and Growth Indexes (see http://www.centerforfinancialstability.org/oped/Value_Investing_063020.pdf).
Not surprisingly, the relative outperformance of value versus growth strategies coincided with periods when the Fed curtailed its injections of monetary liquidity: 1) the end of QE1, 2) end of QE2, 3) end of QE3, and 3) the period of quantitative tapering.
Although the monetary policy response to the Coronavirus was needed, unintended distortions should be acknowledged and incorporated into future actions.
The implication for value investors is clear. Monetary largess is wreaking havoc with the investment strategy. For the public and officials, the propagation of valuation distortions starve a wide spectrum of deserving companies and industries access to capital. This will surely minimize private sector driven growth going forward.
View the report
http://www.centerforfinancialstability.org/oped/Value_Investing_063020.pdf
Category Archives: Money Supply
CFS Monetary Measures for May 2020
Today we release CFS monetary and financial measures for May 2020. CFS Divisia M4, which is the broadest and most important measure of money, grew by 28.5% in May 2020 on a year-over-year basis versus 22.0% in April.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_May20.pdf
For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’
Record Surge in CFS Money Growth
CFS Divisia money growth soared across the board – hitting a historic high not witnessed in the 53-year period analyzed by our Advances in Monetary and Financial Measurement (AMFM) team. CFS Divisia M4, which is the broadest and most important measure of money, grew by a record 22.0% in April 2020 on a year-over-year basis versus an unrevised 10.0% in March 2020.
Today’s release represents the first time that all of our monetary aggregates reached new records.
In the last month, since our highlighting a future of nuanced changes surrounding the inflation versus deflation debate, a surge of articles and pieces have appeared.
Disinflation will likely dominate in the near term with jobless claims hitting highs and oil prices remaining relatively low for an extended period of time. Nonetheless, the passthrough from monetary policy into inflation is meaningfully more complex than often thought. My remarks at the Society of Economic Measurement conference in Thessaloniki shed some light on the interplay between CFS Divisia Money and inflation over time – http://centerforfinancialstability.org/research/why_cfs_divisia_071316.pdf
Our data suggest that recent monetary measures will prove far from costless. Higher inflation is likely in coming months.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Apr20.pdf
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’
FT Letter: The faultlines of the crisis are complex and varied
Today my letter in the FT responds to Martin Wolf’s “Coronavirus crisis lays bare the risks of financial leverage, again.” Martin clearly highlights segments in capital markets creating fragilities before the recent shock.
The role of central bank policy distorting incentives in 2019 was absent. Skewed investing incentives began on December 18, 2018 – when the FOMC statement misread the global economy and markets and balance sheet expansion resumed.
“The faultlines of the crisis are complex and varied”
https://www.ft.com/content/48e41d0c-8bb4-11ea-a01c-a28a3e3fbd33
For more on Fed policy and markets after December 18, 2018 – see pages 5-6 of my Boston Economic Club remarks
http://centerforfinancialstability.org/speeches/BEC_Now_What_031820.pdf
CFS Money Growth Soars to double digits
CFS Divisia money growth soared across the board with broad money expanding at a double-digit pace in March (10.0%) – for the swiftest gain since October 2008 (10.6%). CFS Divisia M4, which is the broadest and most important measure of money, grew by 10.0% in March 2020 on a year-over-year basis versus 7.2% in February.
Large infusions of Federal Reserve liquidity led to the largest gain in narrow money since the start of our data begins in 1967. Here, CFS Divisia M1 advanced by 15.1% in March from the year earlier, relative to a scant increase of 1.0% in March 2019 over the preceding year. The second largest increase in the history of CFS Divisa M1 occurred in August 2011 in the aftermath of the Global Financial Crisis during the height of QE.
An odd mix exists between gigantic infusions of Federal Reserve liquidity and agents in the economy flocking to safety.
Lastly, the inflation versus deflation debate will become more nuanced as time elapses. To be sure, disinflation will dominate in the near term with jobless claims hitting highs and oil prices likely to remain low for an extended period of time. Nonetheless, the passthrough from monetary policy into inflation is meaningfully more complex than often thought. My remarks at the Society of Economic Measurement conference in Thessaloniki shed some light on the interplay between CFS Divisia Money and inflation over time – http://centerforfinancialstability.org/research/why_cfs_divisia_071316.pdf
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Mar20.pdf
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST
4) ECST S US MONEY SUPPLY
Now What? Three Vectors for Investors and Officials
In the middle of financial crises, one often hears “Now What?”
At the Boston Economic Club, I discussed the evolution of three vectors (policy, markets, and the Coronavirus). These vectors offer officials a blueprint to stabilize markets and asset managers a roadmap for investment decisions. To be sure, the Coronavirus is only part of the reason behind the fierce market response.
Six big “Now Whats” or action items are discussed.
For full remarks:
http://centerforfinancialstability.org/speeches/BEC_Now_What_031820.pdf
CFS Monetary Measures for February 2020
Today we release CFS monetary and financial measures for February 2020. CFS Divisia M4, which is the broadest and most important measure of money, grew by 7.3% in February 2020 on a year-over-year basis versus 7.0% in January.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Feb20.pdf
For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’
CFS Monetary Measures for January 2020
Today we release CFS monetary and financial measures for January 2020. CFS Divisia M4, which is the broadest and most important measure of money, grew by 6.9% in January 2020 on a year-over-year basis versus 6.7% in December.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Jan20.pdf
For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’
CFS Monetary Measures for December 2019
Today we release CFS monetary and financial measures for December 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 7.0% in December 2019 on a year-over-year basis versus 7.4% in November.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Dec19.pdf
For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’
CFS Monetary Measures for November 2019
Today we release CFS monetary and financial measures for November 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 7.4% in November 2019 on a year-over-year basis versus 6.6% in October.
For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Nov19.pdf
For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php
Bloomberg terminal users can access our monetary and financial statistics by any of the four options:
1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’