Money Supply Numbers Thru May 2022

The ship has sunk

Money supply numbers have been released.

Three months ago, upon reading the money supply numbers, I wrote to subscribers indicating that I was raising the cash level in my portfolio to 35%. Last month, I upped that to 50%. Today I am going 100% cash (not counting the Sinking Ship Portfolio, which is designed to weather this storm).

Money supply growth has cratered. We saw a recent bear market rally. Did you get sucked into that? If you watch money supply growth and understand Austrian School Business Cycle Theory (ABCT) then you would have known any rally would be short lived.

A few reminders:

• The rate of money supply growth is a strong indicator of the potential for growth in the capital goods sectors, such as the stock market and the housing market

• Those markets, in terms of total capitalization, only rise over time due to the constant injection of new money in the system

• The rate of money supply growth must be sustained in order to sustain the bubble that is created in those sectors

• A dramatic slowdown can indicate trouble as it reduces the available funds for new investment

• By tracking the 13 week annualized change in the M2 Non Seasonally Adjusted money supply growth, we can get an idea of the trends in the capital goods markets ahead of time

• I post a 13, 26 and 52 week change. For each one, I use an exponential moving average (EMA) that is ~half of the measuring period.

Here are the raw numbers for the last 10 weeks:

The columns are:

• Year, month, date is date of reporting. WkNum is the week of the year (0 - 52), as this helps with comparisons to previous years. (There are sometimes 53 weeks in a year, did you know that?)

• WM2NS is the Fed’s data: weekly non seasonally adjusted M2 pulled right from the Fed’s site.

• EMA columns are the calculated moving averages

• 13, 26, 52wkChg are the important columns.

How much is the money supply currently growing? In week 22 (which is actually through June 6th), we have reached a new low for the year: 0.63%. This is the lowest reading since week 28 of 2018.

13 week annualized M2NSA money supply growth

This is the most important view. The dotted black line is 2022.

The median growth rate for 13 week annualized M2NSA in week 22 is 4.95%. Of the 42 years on record, only one has a lower reading (6-8-1992 at 0.18%).

So while it is seasonally normal for the money supply growth to slow during this time of year, it is not normal for it to slow this dramatically.

Further, when you consider the massive money supply increase that preceded, and sprinkle in some knowledge of credit created bubbles, you have a good idea of what is coming next. A bust is sure to follow.

26 week annualized M2NSA money supply growth

At 5.40%, we have now dropped below the median 26wk annualized growth rate for week 22 of 6.09%. As you can see, we are sharply into normal seasonal territory.

52 week M2NSA money supply growth

The streak of double digit 52 week growth ended at 106 weeks. The last time we saw anything remotely close to this was the 55 consecutive weeks that started in February of 1983.

The annual reading is now at 9.16%, the lowest since 4-13-2020 when Jerome Powell had just started his reckless creation of funny money.

Conclusion

The party is officially over. I am moving to 100% cash in my regular portfolio. I am aggressively weighting the sinking ship portfolio to 75-25 bear market, and could go even higher to 80-20 though I just said I wouldn’t do that in last week’s blog hah.

Good luck out there.