{"id":18939,"date":"2016-03-17T10:40:16","date_gmt":"2016-03-17T15:40:16","guid":{"rendered":"http:\/\/olduvai.ca\/?p=18939"},"modified":"2016-03-17T10:40:16","modified_gmt":"2016-03-17T15:40:16","slug":"the-monetary-base-buybacks-and-the-stock-market","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=18939","title":{"rendered":"The Monetary Base, Buybacks and the Stock Market"},"content":{"rendered":"
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The Monetary Base, Buybacks and the Stock Market\u00a0<\/a><\/h3>\n<\/div>\n
A Useful Leading Indicator?<\/strong><\/div>\n
\n

We often see charts comparing the S&P 500 to the growth in the Federal Reserve\u2019s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very useful as a \u201ctiming device\u201d, or an early warning device if you will.<\/p>\n

Recently we have come across\u00a0a video of a presentation by Bob Murphy<\/a>, in which he uses a slightly different comparison that might prove more useful in this respect. Instead of merely looking at Fed assets, he uses the total monetary base. Here is a chart comparing the monetary base to the S&P 500 Index since 2009:<\/p>\n

\"1-Monetary<\/a>The monetary base (red line) vs. the S&P 500 (blue line) \u2013 as can be seen, sometimes one or the other series leads, but in recent years the monetary base has been a leading indicator. It probably lagged the market in 2010\/11 due to the fact that traders at the time bought stocks in anticipation of more monetary pumping \u2013 whereas nowadays the market appears to be reacting with a slight lag to changes in base money \u2013 click to enlarge.<\/p>\n

Below is a chart that shows consolidated assets held by the Federal Reserve system for comparison. Since the Fed is currently reinvesting funds from MBS and treasuries that mature, its total asset base is basically flat-lining since the end of QE3. Obviously, all that can be gleaned from this fact is that the central bank is currently not\u00a0actively<\/em>pumping up the money supply. Currently money supply growth is therefore largely the result of commercial bank credit growth.<\/p>\n

\"2-Fed<\/a>Assets held by the Federal Reserve \u2013 flat-lining since the end of QE3. Interesting, but not useful as a short term leading indicator of the stock market \u2013 click to enlarge.<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The Monetary Base, Buybacks and the Stock Market\u00a0 A Useful Leading Indicator? We often see charts comparing the S&P 500 to the growth in the Federal Reserve\u2019s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[5728,303,7819,305,8697,6170,661,662,696,3054,1138],"class_list":["post-18939","post","type-post","status-publish","format-standard","hentry","category-economics","tag-acting-man","tag-fed","tag-fed-balance-sheet","tag-federal-reserve","tag-monetary-base","tag-pater-tenebrarum","tag-qe","tag-quantitative-easing","tag-sp","tag-stock-buybacks","tag-stock-market"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18939","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18939"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18939\/revisions"}],"predecessor-version":[{"id":18940,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/18939\/revisions\/18940"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18939"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18939"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18939"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}