We have recently discussed the sorry state of the junk bond market, as well as the noteworthy decline in the annual growth rate of US money supply aggregates. The latter has finally manifested itself not only in terms of narrow monetary aggregates like M1 (see chart) and AMS (“Austrian money supply”, a.k.a. TMS-1, the narrow true money supply), but also in the broader true money supply aggregate TMS-2.
Photo credit: Keith Maniac
As a reminder, here is the most recent chart of the year-on-year growth rate of TMS-2 :
Year-on-year growth in money TMS-2 has declined to its slowest pace since November of 2008, shortly after Ben Bernanke’s money printing orgy had been unleashed – click to enlarge.
Below is a chart of the annual growth rate of narrow money AMS from the transcript of the October advisory board meeting of the Incrementum Fund. US money AMS is calculated by Dr. Frank Shostak. The chart shown below originally appeared in his AAS Economics Weekly Report of October 5, 2015.
As you can see, the growth rate of the narrow true money supply has fallen off the proverbial cliff recently. It is fair to assume that it will continue to be a leading indicator for the growth rate of TMS-2. Steven Saville of the Speculative Investor has recently mentioned that the sharp growth in euro area money supply (a chart of the growth differential between US and euro area AMS can be seen here) could well help to keep asset prices up longer, by offsetting the slowdown in US money supply growth to some extent.
This idea certainly has merit, as there exists empirical evidence to this effect. However, the US stock market will likely continue to be the leading international stock market. Should leveraged positions in the US market run into trouble, it will affect “risk asset” prices nearly everywhere. The danger that this could soon happen is clearly growing:
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