Dow Jones vs. the Monetary Base Chart

Updated again: October 30, 2009 (added 2008-2009 chart to 2009 only chart)

This chart ran along with The Bernanke Market piece that ran in the Wall Street Journal back in July. I thought it was worth updating. The market seems to be following the Fed's money creation. I suspect the market will give out well before the Fed stops printing money.

The monetary base data is from this page at the St. Louis Fed. WSBASE is defined as the "Sum of currency in circulation, reserve balances with Federal Reserve Banks, and service-related adjustments to compensate for float."

 

 

Comments

[Robert Dobb]

Charts.

They always leave out, and or disregard all sorts of pertinent information

As do those who solely live by them.

[Mark Sigal]

So, to be clear, your thesis remains that Bernanke's the market, and sooner than later, the market will see this as artificial and unsustainable. Is that an accurate assessment?

Mark

[Kurt Hinz jr]

Thanks, Andy. Really Appreciated!

FWIW,
Volatility is calm, Corporate Junk Bonds are stable >> ergo: so far, so up.

Ad Mark:
Well, I wouldn't say that the FED is 100% of the current market... but close :)

Profit!

[Mark Sigal]

@Kurt. thanks for the perspective.

[Shultz]

When you say "I suspect the market will give out WELL BEFORE the Fed stops printing money." it is inconsistent with the logic that "the Fed is the market". You can't argue it both ways.

Stock market will come down when the Fed withdraw the $1 trillion extra liquidity, as it has gone up when it inject it.

The stock market high point in 2007 is supported by credit expansion from incorrect credit assessment of mortgage backed securities and consumer debt. When the reality is revealed, investors withdrew their credit, and hence the sharp and sudden drop of DJIA. The Fed stepped in to fill in the void to stem the panic. It looks likely the Fed won't withdrew the credit until we see job market recovery. When economic growth returns private creditor will provide credit again. No one wants to lend money to a man without a job. But once he has a job it is a whole different story. If you don't want his business, I do.

[Ken]

Bernanke never met a helicopter he didn't like. He's been waiting for keys to the helicopter for years and was just looking for an excuse to take it for a spin.

I like that he reminds us just about everyday that he is going to keep too much liquidity in the system for too long. My guess is this biggest of all bubbles builds and continues to inflate stocks, bonds and commodities. Housing, I don't know about since the wages aren't there to support much higher prices. Ultimately, inflation numbers look like hell and either the dollar crashes or interest rates soar. Until then, the casino is open for business.

Just have to diversify out of the US and into hard assets to cover ones butt.

[cabernet reserve]

I'm posting this additional article on JBS.org to highlight the most interesting document that I uncovered during my research.

Back in August 2006, Richard G. Anderson, Vice-President of the Federal Reserve Bank of St. Louis, wrote a working paper entitlled, "Monetary Base," which is currently posted online by the Research Division of the Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/wp/2006/2006-049.pdf. Although the working paper carries a boilerplate disclaimer stating: "The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors," it is highly interesting to read what this paper has to say regarding the monetary base.

Here is an extended excerpt from Anderson's "Monetary Base" paper:

The monetary base in monetary economics is defined and measured as the sum of currency in circulation outside a nation’s central bank and its Treasury, plus deposits held by deposit-taking financial institutions (hereafter referred to generically as “banks”) at the central bank....

[Ward29DOROTHEA]

Houses are quite expensive and not every person is able to buy it. But, mortgage loans are created to support different people in such kind of cases.