Is M1 Topping?

M1 growth has topped out in April.  With the possibility of the Fed rising interest rates, it will be interesting to see if M1 continues to expand.

Bastiat: Seen and Unseen

This is probably one of the most insightful quotes I try to remember and emulate in all aspects of my life:

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

“Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

– From an 1850 essay by Frédéric Bastiat, “That Which Is Seen and That Which Is Unseen”

Here They Go Again

Fed is starting to give mixed signals.  This has been par for the course for many years leading up to decision time.  Here is Fed 's Kocherlakota:

He added: “What’s going on in the labor market does not strike me as a strong argument for tightening.”

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Never Believe a Forecast

Ever wonder how certain folks on TV are able to make predictions with no doubt whatsoever?  Barry Ritholtz has a good article on just that and even better advice, "just ignore them".  From the article:

It’s that time of year again when the mystics peer deep into their tea leaves, entrails and crystal balls to divine what’s ahead.

Which means it’s also time for my annual reminder: These folks cannot tell the future. Ignore them.

Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?

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Shiller on market reaction to Fed rate increase

From the article:

It could be argued that the Fed will surprise people only if it doesn’t raise rates after Friday’s strong jobs report, or raises them less than expected or issues a statement that is weaker than expected. Something like that may have happened on Thursday when the European Central Bank’s stimulus measures evidently disappointed the markets.

But a major surprise from the Fed? That would be surprising.

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Can central banks print money in perpetuity?

Theoretically, yes central banks can print money and inflate forever.  What can stop central banks from endlessly inflating?  A number of theories have been developed.  However, hyperinflation is the only thing that will stop the central bank from inflating.

Here’s Rothbard on the continuation of fiat currencies:

I am not saying that fiat money, once established on the ruins of gold, cannot then continue indefinitely on its own. Unfortunately … if fiat money could not continue indefinitely, I would not have to come here to plead for its abolition.[mises.com]

Here is Mises' on when it ends:

If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). [mises.com]

What is the Money Supply?

Good video series from the Philadelphia Fed explaining the differences between the various money supply measurements.  M1 has the most direct impact on inflation and asset prices:

Key Insider: "Almost impossible for Fed not to hike"

El-Erian is a trend follower.  He has a way of summarizing what is happening, but is too smart to make any predictions.  So when he says it's almost impossible for the Fed not to hike, it is just about a sure thing that the Fed will raise.  If not, it will be a big surprise to markets.  From El-Erian's article on Bloomberg:

The jobs report for November released Friday doesn't just make it a near-certainty that the Federal Reserve will hike interest rates later this month. The data also further confirm the divergence in the policies of the Fed and the European Central Bank. And they highlight the cyclical and structural complexities facing the U.S. economy, which will require the Fed to pursue the loosest tightening cycle in its modern history.

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Stock Market Reactions to Past Fed Lift Offs

The market is very complex and you can only use history as a guide for general expectations about the future, not a prediction about the future.  So here is a great look at past market reactions from previous "lift offs."  From The Almanac Trader:

We currently appear to be tracking the historical pattern of positive market action leading up to the first rate increase, which would indicate a mild selloff after. However, as we have been thinking recently, this being the most debated and anticipated Fed move of all time, the removal of uncertainty may send stocks higher into yearend this time around.

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80% Chance of Rate Hike in December

Does Zuckerberg Think We're Suckers?

The NY Times takes down Zuckerberg's phony donation claim.  From the article:

Mark Zuckerberg did not donate $45 billion to charity. You may have heard that, but that was wrong.

Here’s what happened instead: Mr. Zuckerberg created an investment vehicle.

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Hillary's Interest Rate Prediction (Just Silly)

From the Reuters article:

"The Fed has been signaling this for a very long time if they do make this decision by the end of the year ... I think the markets in the U.S. and the world will have already processed that and they have laid out what criteria they think should be applied," she told reporters after a campaign event.

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Wages in China, Mexico and Brazil

The Big Short Trailer

ISIS - Que Bono

I have a few questions regarding ISIS, AL-Qaeda, etc.:

1. Why is it that the general public knows more about these groups than basic economics or other local issues that directly affect them?
2. Where do these groups get their money?
3. Who provides their training?
4. How do they get intell and who provides it?
5. How do they maintain supply chains?
6. Why do they have known operational basis?
7. Who benefits from their existence?

 Why are these questions not being asked?

Bernanke Pats China On The Head

In a somewhat bizarre post on his blog, Bernanke gives China a "gold star" for gaining access to the IMF's SDR.  From the post:

If your elementary school was like mine, when you did a good job on your homework you got it back with a gold star pasted on top. The gold star was not valuable itself—you couldn’t deposit it in the bank—but it recognized your good efforts and, maybe, motivated you to work hard on the next assignment. 

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ISM Dips

ISM Index Contracts

The ISM Index is below 50%, which suggests that the economy is slowing significantly on the manufacturing side.  Exports are dragging the economy down, which is mainly due to China's contracting money supply.  However, China is starting to ramp up money supply growth and should this continue, we except the economy to be in a very different place this time next year:

Mixed Signals From The Fed

Many complaints about the Fed's inconsistent message has surfaced of late.  It's possible, that the Fed is facing some discord from within.  It's also possible, that the Fed is trying to keep everyone guessing.  In a recent posted titled, "Keep 'Em Guessing," I argued that the Fed must keep every guessing once the boom is on.  Otherwise, the situation (i.e. prices) can easily go off the rails.  This will happen anyway, but they are trying their best to "manage" what is a price.  Price management or price controls have always failed and will always lead to significant economic disruption.

The Fed Needs to Get Its Story Straight

The U.S. central bank is sending mixed messages on when an interest rate hike will finally happen. The bankers better get their communications strategy in order. Now.

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Credit Growth Slowing

Credit growth is slowing according to the NACM Credit Manager's Index.  Although there is a lag, M1 has slowed for some time and that slower growth will show in indexes like the NACM: