Friday, July 8, 2011

UPDATED--How to Gun the Stock Market: M2 Money Supply Edition

UPDATE: I love Google.
I wanted to see if anyone else had noticed the M2 spike and sure enough, Andrew Lees at UBS has some comments, see below.

Original post:
So I'm hangin' out at the St. Louis Fed and I sez to myself, "You haven't looked at the M2 chart this week".
Holy crap:

FRED Graph

  • 2011-06-27: 9144.2
  • 2011-06-20: 9068.1 
  • 2011-06-13: 9038.0 
I can't remember the last time we saw  M2 explode $76 Billion in a week and $106 Bil. in two.
All that money looking for something to do could result in something like this:

(DJIA 2mo.)
M2 at the FRED database.

Update: From Credit Writedowns:

After careful consideration, I remain bearish
By Andrew Lees, UBS
I highlighted in today's daily that M2 money supply jumped by a massive USD76.1bn in the last week of June which was the biggest leap since the 22nd September 2008 when it leapt by USD178.3bn lifting the S&P 11.6% intra week.

Various explanations have been offered; seasonality, outflows from money market funds - (money market funds are apparently part of M3 which the Fed doesn't publish but not part of M2) - as they have seen redemptions due to their exposure to European paper, and finally it may be related to the end of Rule Q which had prohibited the payment of interest on corporate deposits.

This is the largest rise since September 2008 so seasonality is not all of it and July 4th hasn't historically given it much of a boost. Money market outflows during the week were just USD17bn and USD65bn for the month as a whole, while Rule Q doesn't get implemented until 21st July. Perhaps it was one last roll of the dice by the Fed although it doesn't show up in its balance sheet. Whatever the reason, money supply surged and with it the S&P. Coincident or not?...MORE
I'm thinking Bingo!