By Bill Cara
The price of gold is about to jump through the roof, finally :), and gold is linked to money supply. With my reference on Thursday about the Fed no longer being able to properly use the money aggregates data in its policy decisions because of questionable data, it’s a good time to look further into this money supply situation.
Thank you to LB who asked me about it in the Comments Section to Thursday’s article, A Look Back At the Fed Bailout of Citigroup.
I wish more readers would send me their queries. I wake up in the morning and ask myself, “What am I going to write about today?”
If I’m in a good mood, I write something positive; otherwise it’s just another rant. Ninety minutes later, I upload it and then usually before 8am ET, I’m ready to start my day…reading, navel gazing, cutting grass, cleaning the pool, and so on.
It’s a tough life.
I’d rather be in The Bahamas fishing, but family responsibilities and other matters are keeping me here in Southern Ontario.
We’re going to have a federal election in a week or so in this country. Amazingly, the Liberal Party, in power for so long that I cannot recall when we last had a Conservative Prime Minister, appears under Paul Martin to be blowing it. The polls indicate a Conservative minority, although it is still a possible dead heat.
The last Conservative P.M. we had was an Irish-Canadian ex-labour lawyer, raconteur, and baritone singer of some note. When he came to power, he was blessed with the largest majority of seats in the history of Canada. His name was Brian Mulroney, now I believe, a resident of Palm Beach FL, where he hob-knobs with America’s great capitalists.
Actually Prime Minister Mulroney stepped down a winner, along with many of his team, and then let a newbie take charge for a few months before a subsequent election. At that point in 1993, he had reached the lowest popularity of any leader in the country’s history. I think that his replacement won 2 of about 360 federal riding seats for the Conservatives.
That was the biggest political reversal ever in the free world – something like Bush winning the State of Rhode Island and none other, this year. It’s what happens in a democracy when the voters become really unhappy about economic matters.
But Mulroney was, and is today, a great man. Right out of the Ronnie Reagan mold and, for years, one of Reagan’s closest friends and political allies.
Last week at the late President’s funeral, Mulroney did Canadians proud with his moving remarks in giving one of the eulogies.
In recent years, Mulroney has become probably the most powerful businessman in Canada, and it looks good on him. Well done, Brian.
The latest Conservative leader, Stephen Harper, 45, is an unknown to most Canadians, but in appearance he looks like a knock-off of George W. Bush and Tony Blair — probably even more right-of-center than Bush.
I think he’ll be a good leader, if elected. The Liberal Paul Martin is also an outstanding man.
Now that I think about it, I believe that this country has had, as has the United States, a long series of worthy leaders. To that, I applaud the electorate.
If the public could only manage their own investments as well as they elect their governments, I wouldn’t have an interest in doing this blog.
The sad fact is, however, that in spite of an excess of information and educational means, and financial advisors of every stripe and color, at least 75% of individual investors have little understanding of what they are doing.
Now, let’s get to the U.S. money supply – those M1, M2 and M3 monetary aggregates I spoke about yesterday as being so meaningless.
Without getting into the details, M1 is Currency, Travelers Checks, Demand Deposits and other Checkable Deposits.
M2 is M1 plus Retail Money Market Mutual Funds, Savings Account Balances and Small Time Deposits.
M3 is M2 plus Large Time Deposits, Repos, Eurodollars and Institutional Money Market Mutual Funds.
The figures are reported monthly (unadjusted and seasonally adjusted) by the U.S. Federal Reserve Bank. You ought to take a look.
Monetary policy is the chief weapon of the Fed in its duties to maintain low inflation and to stabilize the national currency with respect to foreign exchange among its main trading partners. The Fed has done such a solid job in this regard, since Alan Greenspan has taken over in 1987 as chairman of the Fed, that the U.S. dollar has become the global standard among international currencies.
Now, to my remarks on Thursday — the web site of the Federal Reserve Bank of New York, which is the most important of the Fed district banks, and whose President serves as Vice-Chairman of the U.S. Fed, states as follows:
For decades, the Federal Reserve has published data on the money supply, and for many years the Fed set targets for money supply growth.
In the past two decades, a number of developments have broken down the relationship between money supply growth and the performance of the U.S. economy.
In July 2000, the Federal Reserve announced that it was no longer setting target ranges for money supply growth.
The Federal Reserve System and public- and private-sector analysts have long monitored the growth of the money supply because of the effects that money supply growth is believed to have on real economic activity and on the price level. Over time, the Fed has tried to achieve its macroeconomic goals of price stability, sustainable economic growth, and high employment in part by influencing the size of the money supply. In the past two decades, however, the relationship between growth in the money supply and the performance of the U.S. economy has become much weaker, and emphasis on the money supply as a guide to monetary policy has waned.
So, while the Fed publishes the money aggregate figures monthly, the Fed itself says on its own web site that the data is not of much use. Is this because of the new power of the Underground Economy or possibly the relative enormity of the Offshore holdings of dollars? I really don’t know.
Even if its just good fodder for your next cocktail party, however, I think a little reading about the Fed would serve you well. As the head referee in global capital markets, the Fed does play a crucial role.
Take 15 minutes to go over the web sites of the main Fed (the ‘About Us’ section is terrific) and the New York Fed.
The June 16 statistical release by the Fed on Industrial Production and Capacity Utilization is very informative. This is the stuff that bank economists comb through but I assure you that anybody with a minimal education will quickly review and comprehend most of it.
The U.S. trade-weighted dollar has maintained its strength longer than I had expected, which means that gold bullion, which is priced in U.S. dollars, has been for some time under pressure.
That picture might be changing. With the recent CPI/PPI numbers being released in the U.S., and with the tightening of other central banks in the world, I believe the gold market is now going to heat up.
Six of the top 30 of 50 or more gold stocks I regularly monitor have turned long-term positive in the Stochastic indicators I use, so there is some upward movement in the gold industry group of the Basic Materials sector.
The Bi-weekly data for this index has turned positive on the Stochastics indicator, so the Monthly data chart is next to go positive. At that point, there will be an All Points Bulletin to Buy Gold Stocks.
Sunday I’ll review the gold stocks again because I think the industry group is ready to buy. I am going to issue a Buy Alert!
The gold stock promoters have canceled plans for a summer vacation. The printing presses will be going 24X7 for the next several months.
In a couple months, I even expect to read many analysts telling the public that the Money Supply growth is out of control.
After cutting about 5 acres of grass in the next several hours, I have to return to Toronto for a few hours to fix a computer glitch. It seems I have not been receiving e-mail from that system since Tuesday. I’ll return to the country this evening and tomorrow (Father’s Day) will be back online.
Today in the hospital my own father was able to lift his left arm and left leg about eight inches off the bed, and he can now smile, so thank goodness for small mercies. His total left-side paralysis seems to be abating after a full month.
A couple days ago we didn’t think he could survive this third major stroke but he’s a fighter. Some day I hope to publish a photo of him winning a golf tournament.
Funny, but the only time I shot under 120 in my life (I like to enjoy myself on the course) was with Dad at the tough National Course in Woodbridge. He kept me so serious I shot 99. That was years ago and to keep golf a fond memory, I’ve never gone back to a course again.
True story. I am a Cancer and love the water instead, which partially explains my fascination for The Bahamas.
About Bahamas, some of my friends there asked me on Friday to consider setting up a major investment facility, something that has never been done before, so I started to ponder the business model and technology we would need.
You know I like to start things from scratch. If I decide to go ahead, I’m sure I’ll write about it here.
Have a great day and a great Father’s Day!
Source: Trader Wizard
About the U.S. Money Supply Data
Bill Cara for the Trader Wizard The price of gold is about to jump through the roof, finally :), and gold is linked to money supply. With my reference on Thursday about the Fed no longer being able to properly…