Ad the M2 money supply to your BTC chart to see where we are ...BNC:BLX
... and where we should be :)
M2
Total Market Index Significantly Outpaced the Money SupplyIt seems like good deals are to be had when the total stock market increase is below the increase in the overall money supply.
The green is the M2 money supply and the yellow line is the VTI total stock market index.
You can see you got a good deal in March when stock prices fell below the increase in the money supply. The same for 2019 and 2016.
There might be something of a bubble as current prices significantly outpaced the growth in the money supply.
The US Dollar and the Future of the Asset MarketsIn this analysis, I'll take a look at the US Dollar Index (DXY), analyze it from both a technical and fundamental aspect, and look at what this could imply for the asset markets this year.
DXY Technical Analysis
- To begin with, we can take a look at the monthly chart for the dollar index
- Since 2001, it has been on a downtrend, and ever since 2008, it has been trading within an ascending parallel channel, creating higher lows and higher highs
- We are currently testing the bottom of the channel support, which aligns with the 0.382 fibonacci retracement level
- Should we see a technical bounce, we could expect huge resistance at 101.7
- If the structure breaks down without a dead cat bounce, we could expect some support at 82.5
DXY Fundamental Analysis
- Despite potentially bullish signs from a technical perspective, all fundamental aspects suggest otherwise:
- Due to the Covid Pandemic, we have seen quantitative easing take place at an unprecedented rate
- Biden proposed a $11T spending plan. Regardless of whether he can enact it, this is certainly bad news for the dollar
- Talks of a $2,000 stimulus is taking place, and it's very likely that it could pass
- When the Fedd raises rates, the USD rallies strongly against assets.
- However, it was said that the Fed would keep the near-zero rates at least until 2023.
So what does this imply for the asset markets? How can we capitalize on this opportunity?
- The chart above demonstrates the following: US Dollar Index (DXY), Nasdaq Composite Index (IXIC), Bitcoin (BTC), and M2 Money Stock (M2)
- We can see the clear change in trend after the Covid shock in March
- The Covid outbreak began around late November in China, but it was only in March that the global financial markets were hit
- Ever since March 2020, M2 has grown at an exponential rate, and with this, the dollar has fallen dramatically while asset and security prices have risen significantly
- As fundamental factors may drive the DXY further downwards, it's reasonable to expect asset/securities prices to rally upwards.
- As such, it's important to understand that the returns you made in 2020, and will make in 2021, is a byproduct of strange macroeconomic situations, in which your cash is becoming trash.
- It may seem like you're earning money, but in reality, most of it is asset/security prices being inflated.
Does this mean we are in a bubble?
No one can predict the future, but in my humble opinion, it's hard to confirm that this is indeed a bubble.
To understand my perspective in depth, check out my previous analysis below:
For us to not undergo another bubble that'll be written down in history, it's important that we see the real economy catch up with the rather hyped-up financial markets. Of course, we'd have to see the majority of the world's population get vaccinated, and have the Covid pandemic settled to an extent, where people can have their normal lives back.
It's important that capital be invested into medium-small businesses, which serve as real jobmakers, and have individuals consume goods and services, rather than save their money, or invest in financial markets.
Conclusion
In conclusion, it's important that retail investors and traders focus on improving their sharpe ratio this year. We may, or may not be in the middle of a bubble. Only time will tell. What we can do, is meticulously manage risk, and focus on maximizing returns while reducing the chances of losing it all, in case this market does turn out to be a bubble.
If you like this educational post, please make sure to like, and follow for more quality content!
If you have any questions or comments, feel free to comment below! :)
SPX's Correlation with M2 since 1980.Definition
Correlation Coefficient (CC) is used in statistics
to measure the correlation between two sets of
data. In the trading world, the data sets would
be stocks, etf's or any other financial
instrument. The correlation between two
financial instruments, simply put, is the degree
in which they are related. Correlation is based
on a scale of 1 to -1. The closer the Correlation
Coefficient is to 1, the higher their positive
correlation. The instruments will move up and
down together. The higher the Correlation
efficient is to -1, the more they move in
opposite directions. A value at 0 indicates that
there is no correlation.
----------------------
M2 is a measure of the money supply that includes
cash, checking deposits, and easily convertible
near money.
M2 is a broader measure of the money supply
than M1, which just includes cash and checking
deposits.
M2 is closely watched as an indicator of money
supply and future inflation, and as a target of
central bank monetary policy.
-------------------
BTC/GOLD & BTC/M2 near 2017 ATHI have been plotting BTC against GOLD (left) and M2 (right) to try and look at the value adjusted for inflation and buying power (using gold to measure buying power).
M2 is the amount of money in the world (to simplify it) and BTC / M2 has already broken the 2017 ATH by 7.81%. This is a good sign as it shows that we have surpassed the previous cycle high when adjusted for the money printing that has happened since then. If we only look at BTC /USD we do not take into account the devaluation of the dollar over time, and the loss of purchasing power caused by this. It is not perfect as we are simply adjusting for the money printed but not for the change in prices of all assets (and stuff in general), so we look at gold too.
Gold is commonly used as a hedge against inflation and a stable store of value (this paradigm may change soon) and BTC is slowly becoming seen as gold 2.0. Looking at the price versus gold is useful as it adjusts for inflation (in a way) but more importantly buying power. Gold is not a perfect inflation hedge as studies have shown it does not necessarily correlate well to inflation . It does however have a good record of holding its purchasing power over a long time, but not perfectly (see "The Golden Dilemma" paper from National Bureau of Economic Research). Looking at BTC / GOLD shows us that BTC has not yet broken ATH but is close. Meaning that to buy 1 Bitcoin , it will cost you roughly the same purchasing power as it would have back in 2017, not more as the BTC /USD chart would have you believe. I'm using this chart since we are in a blue sky breakout right now, and there is no real way to tell where we may top out. This chart can help with spotting with potential danger zones and reversal areas.
If we do not break the ATH vs GOLD to me that shows that BTC does not have the confidence behind that you may think it has when reading the news. However I think we will break through at some point soon, hopefully after a pullback so I can buy more spot. I'm not making a call on which way this will go. I'm just sharing some charts that people often over look, but can be very useful in times with no historic price action to help make sense of.
I'm very interested to hear peoples thoughts on this in the comments.
ps. HAPPY NEW YEAR
Bitcoin vs M2 Money SupplyBitcoin vs M2 Money Supply
2020 Covid Year - Money Printer goes BrrrrrRRRrrrr...
Stablcoins market cap increase many magnitudes ($20B USDT + others USDC/BUSD)
Bitcoin broke ATH in dollar value will it break in real value yet. Let's see.
Explain why M2 Money and DXY shrank while SPX remained high?An interesting thing happened in the last 2 weeks of November.
Money Supply: United States people fled to cash by converting M2 money stock (savings, investments, money market) into M1 (checking and cash).
Dollar: Foreign investors presumably sold off dollar assets bringing DXY down around 2% in the month.
To recap: The money supply indicates that US people sold stocks and bonds. The Dollar decrease indicates that foreign investors sold stock and bonds.
Explain to me, then, how SPX remained elevated? How is it doing that?
SPX via Equation of ExchangeHi everyone, I am doing some self study and have created the graph above.
using the equation of exchange M*V=P*Y I have calculated 1/Y.
M = Money Supply
V = Money Velocity
P = Price (S&P index value)
Y = Real Output/Value
Keeping the above in mind I calculate 1/Y (inverse because chart is easier to look at)
1/Y = 1/(M*V/P)
Adjusted Value = 1/(M2*M2V/SPX)
With the math listed here we can see that the recent volatility (past 2 years) may have been the result reaching the previous dotcom peak.
We are now resting on top of that peak as support. The trend is consistent and the Fiscal/Monetary response is firmly in control of the market.
If we were to break down from here this chart could be interesting to gauge where the bottom is without as much noise.
Please leave your comments and correct me if you see anything I can improve upon. I am still learning and not a financial advisor/professional so please do not make any trades on my advice.
If you do not look at this as 1/Y and instead just Y it could indicate that real output is falling over time however I would like to discuss this further if anyone has opinions.
Personally I am interested in Asain markets and Gold going forward.
- Salty
#BTCUSD: Bullish until the end of November...I suspect we are seeing a failure in the bearish signal we had recently, and yet another bullish trend in the weekly timeframe here. The M2 adjusted chart is highly interesting as it predicts we may see prices break the 2019 top briefly, I fear this might lead to an extreme in bullish sentiment a subsequent market crash towards lows not seen since the COVID bottom.
I remain cautiously bullish, and patiently waiting to short the top when it materializes as per this analysis.
Here's the spot chart for reference:
Note this is a bullish idea for now, potentially leading to a major market top by the time it peaks as anticipated.
The commitment of traders report shows that CME short sellers keep increasing their short position, and asset managers buying (over record levels). At some point short sellers are likely to win, as has been the case so far.
Disclaimer: We're long for the time being.
Best of luck!
Cheers,
Ivan Labrie.
Nothing Changes - The Next Mortgage CrisisWe all know it's going to happen, just a matter of when, it seems.
Day after day, I come across different traders who have their own narratives about when this debt crisis will finally rear its ugly face and we will be faced with a sober reckoning of decades of monetary irresponsibility and irresponsible allocation of scarce resources to state capitalist companies that veer further and further away from sensible business decisions. Some of us seem to think that it is right around the corner, and that we've got to stack gold, silver, and/or bitcoin to prepare ourselves. Others believe that it's just a deflationary downspiral from here. Most of us seem to be inbetween.
For me, I think it is pretty easy to see. And though my indications would otherwise be seen arbitrary or even nebulous, I think there are some important facts that we have to make clear so that the future isn't as unclear.
The first thing I want to bring to everyone's attention is the growing mortgage-backed securities (MBSs) owned by the Fed, and what this means, put simply, for the rest of the economy and our private banks.
After the pandemic scare, among everything else dropping, one thing didn't see a drop, but a stark, parabolic rise: MBSs owned outright by Federal Reserve Banks. We saw a nearly 30% rise since mid-march:
fred.stlouisfed.org
A rise, which had been seeing a gradual, but steepening, fall since February or March of 2018.
This means two things:
1. Creditors who owned these MBSs held little faith that they could make passive income from the interest off of these MBSs, and sold them to the highest bidder (always the good ole ' Fed).
2. Creditors, also, had little faith in the outlook for these MBSs since any hope for rising interest rates were put to an end, and the narrative that they will be higher doesn't seem to be coming back for a long time. In my opinion, these hopes will never come back.
So how does this affect the banking sector? There's no way they can compete with the Federal Reserve, at this point. If you are inflationary about the future, then you will understand that the Federal Reserve is very deadset on making sure no bubble pops. They will do this by buying up all the debt that they can to avoid default. Unfortunately, this doesn't last forever, and at some point, the Fed is guaranteeing the debt of the whole country, and banks cannot compete with the ultimate market maker and the ultimate currency-producer. For debt-ridden, irresponsible Americans, it will be a wolf in sheep's clothing that seems like a Godsend as every bit of their debt is turned into an asset by the Fed, and even further, as the dollar continues to be debased and "realligned", they will see a steep drop in the strength of their buying power. That's what happens when all of your manufacturing and resources have been imported for decades, and a majority of your skilled workers are foreignborn who have an easy ticket back home where it is much less zany.
I think it is a joke to be deflationary with facts like this. The one needle of deflation in the inflationary haystack is that GDP will slow, and the Fed and Congress will be powerless to stop Americans from saving and paying off their debt, which would be a fair point, if every bit of info was against this. Americans are still the worst savers, incredibly indebted, and will look to any handout that they can get. I think the inevitability that negative interest rates are coming will end up benefitting Americans in the mediumterm.
Negative interest rate policy, NIRP, will be a reckoning for Americans' lifestyle, that will whither down to look much similar to those in Cuba or Albania during communist rule. Debt will be basically turned inside out into credit, and your debt will be used as a backing to the currency. The more you spend, the better. Anyone who has read about government cryptos and NIRP/ZIRP will understand this. Our monetary system will be backed by debt, much like it already is, but the velocity will be kept up so high that in order to maintain your standard of living, you will have to keep purchasing. Put simply, every month you'll get however many dollars, and there will be a timer on it that will expire after however much time, and you will have to spend it all, or it will disappear. Much like vacation days at a lot of your jobs at the end of the year.
Now why would we take a step in this direction? It's only because the Fed and gov't have all interest to do so. Sure, all of our standard of living will diminish, but the Fed will be heroes and be seen as the saviors who helped uphold American lifestyle while the greedy companies tried to steal from us. Everything is in their favor - the government and government-owned media control the placement of the Overton Window.
So to clarify, the main reason the Fed will inevitably be the last bank standing will only be due to the fact that they will do everything they can to stop this Everything Bubble from popping, and will gradually, own every bit of debt out there, and have to rely on NIRP to keep anyone from defaulting. The average American, who can't even tell you where France is on a map, or who Robespierre was, will laud NIRP because it allows them to maintain whatever leveraged lifestyle they've been maintaining for decades, without any attempt at saving or financial planning.
www.cnbc.com
Americans raiding retirement savings to avoid defaults and to stay afloat.
www.marketwatch.com
"One-third of homeowners have less than $500."
"25% of Americans have no emergency savings... 16% have taken on more debt... nearly 1/3 report having lower income than at the start of the pandemic."
"Some 95% of workers in low-income households — making less than $36,000 per year — have either been laid off as a result of the coronavirus (37%) or have experienced a loss in income (58%). A quarter of workers earning between $90,000 and $180,000 a year saw an income loss."
This is a huge point that deflationists and inflationists alike will use to push their narrative, but only the inflationists are right when it comes to how the Fed will act. Sure, the initial onset of Americans jumping into the dollar is a magnificent tailwind for the DXY, but the Americans who have to endure a new loss of income who are extremely frustrated with how things are going, in tandem, with politicians who are steadfast in trying to bring whatever relief will not bide well for deflationists. We either see growing unemployment, growing social unrest, and everything under the sun that is perfect for a violent revolution and exponential drop in standard of living, or we see what we've been seeing for years - Fed and gov't action to maintain status quo and freebies for as long as their fake currency can stand it.
So as unemployment stays steady, standard of living sees a drop, and more Americans save, there will be more of a rush for the Fed to take action and prop up what corporations they can and back whatever debt possible to keep the rusted, empty freight-train rolling at mach speeds.
And in short, the markets see no signs of dropping. We might see another big drop soon as people draw from their pensions and 401ks, but technical indicators see further moves up for the major indexes. The time for a big drop is now, and it just hasn't happened - not as violently as many of us initially thought. Going short is a good way to get screwed super quick in a bubble that is everinflating.
Gold Vs m2 and SPX have more room to grow than u thinkPast week, gold only followed dxy moves, how many more days left?
BTCUSDT/M2 - The Beginning of the End?BTC has had an extended bullish push up from the March 2020 "Black Swan" lows and by most metrics this recent sell-off looks like just another one of its large corrections the crypto is known for.
As many have noted, throughout the covid crisis most world economies have been printing money like there's no tomorrow nor consequences of doing so (insert "money printer go brrrr" meme here). So, we have hugely over-inflated fiat currencies (most notably the US dollar) and crypto currencies (USDT supply at ATH), and a surplus of money to be injecting in to the market following massive bailouts of corporations - pumping up prices and giving us all the illusion of safety. Looking at traditional markets' indices, the SPX500USD & NAS100USD have both recaptured and soared past their previous all-time-highs when not accounting for the M2 money supply.
However, what story do these charts tell us when we do take the M2 supply into account? Looking at BTCUSDT in particular, we can see that we had a clean break of the bearish market structure line in November last year and despite the 170% pump we've seen this year, we've failed to push above the weekly bullish market structure and have instead rejected the key resistance point of the quarterly premium taken from June '19 highs to March '20 lows. We are now creating a series of lower highs and lower-lows after having broken the 3-day bearish market structure at these key levels - indicating further long-term bearish price action if we fail to recapture above the 12060 level.
Could this year's pump have simply been a return to a key liquidity level for smart money to have taken their exit positions? It's certainly starting to look that way.
Inflation is distorting the way you perceive pricesTriple bottom bounce incoming? Money printer go brrr.
Green = inflation adjusted (negated from price, representing a lower price)
Orange = actual market price
Of course I didn't take LTC inflation into account. Is it useful? You be the judge.
The myth of hyperinflation series #5- Velocity of moneyEven if the purchasing power is rising, without the increase of velocity of money, there will be no inflation and sustained economic growth.
Circulation/velocity of money measures the interval between money transactions, decline means less transaction is taking place and the interval between money transactions is getting longer.
According to the July 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices, senior loan officers have tightened their standards and terms on commercial and industrial (C&I) loans to firms of all sizes. Furthermore, banks reported weaker demand for C&I (commercial & real estate) loans from firms of all sizes and weaker demand across all three major commercial real estate (CRE) loan categories- construction and land development loans, nonfarm/nonresidential loans, and multifamily loan over the second quarter of 2020.
Next, we will look at demand and consumption.
Every time M2/Silver RSI hit these levels S&P500 had a setbackEvery time the M2/Silver ratio RSI hit these levels S&P500 had a setback. Will this time be different?
So is the printing over?July seems to indicate the first monthly decline in M2 in many years. Is the Fed reigning things in?
Velocity of Money (M1 and M2)M1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks.
M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
SPX / M2 paints a very different picture of the global marketThis chart shows the SPX/M2 and essentially paints a picture of the SPX when accounting for inflation.
All the "gains" made in the time following the 2008 crash, after factoring inflation in, simply put price or "value" back to where it peaked.
How interesting that the 2020 crash should occur at such a pivotal TA level, forming a near perfect sweep of highs and double top.
From this view, it looks as though the price action following the 2020 march lows is simply amounts to a bearish retest.
Will be an interesting one to watch as the money printer fires up yet another round of QE.
Brrrr, brrrr, brrrr.....
Gold vs M1 and M2 Money SupplyM1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks.
M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.
We are looking at the GC1! gold futures vs these money supplies
As we print more we expect these money supplies to increase, so we can start to see the 'real growth' in terms of how much $ is 'out there'
I examine lots of these 'composite' charts as I call them, but let me know your thoughts as well!
**NOTE** Because sometimes there are scaling issues; attempt to line the angles up with the black lines with same origin, thanks!
Manage your own risk
Much Love
GL HF
xoxo
snoop
Indexes vs M1 & M2 Money SupplyM1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks.
M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.
We are looking at the major US Indexes Dow 30, SPX 500, Nasdaq 100, & Russell 2000 vs each of these types of money supplies
As we print more we expect these money supplies to increase, so we can start to see the 'real growth' in terms of how much $ is 'out there'
In the more liquid M1 Money supply it looks like we may have bottomed here on the indexes by testing the 'all time' trend line
But in the less liquid M2 Money supply we /could/ expect a fall further if things really go south here. We never tested the 'all time' trend line. No /need/ to but if we did it would be within reason.
I examine lots of these 'composite' charts as I call them, but let me know your thoughts as well!
Manage your own risk
Much Love
GL HF
xoxo
snoop
20% Increase in Currency Supply in 4 months!Just making an observation that the total amount of currency in circulation (Physical + Bank Credit) has increased an unprecedented 20% in the last 4 months. I believe, when we are looking at this chart, we are looking at a Credit Bubble.
Something that bothers me. Current National Debt is around $24.2T, however, we have $18.4T in total dollars in circulation. So even if you use every dollar in existence to pay off the National Debt, you still have $5.8T USD in debt remaining... how does that get paid off?? Need to dig more into this.
