12/03/2023
Strength of US consumer has likely run its course: Michelle Girard
For the first time in 90 years, U.S. money supply is meaningfully contracting
While there's no predictive tool or metric that can, with guaranteed accuracy, always predict short-term directional moves in the Dow, S&P 500, and Nasdaq Composite, there are select indicators and datapoints that strongly correlate with directional changes in the broader market. One such datapoint that should be raising investors' eyebrows is U.S. money supply.
Although there are five measures of U.S. money supply, M1 and M2 are the two that garner most of the attention. M1 consists of cash and coins in circulation, as well as demand deposits in a checking account. It's money you have easy access to and can spend at a moment's notice.
Meanwhile, M2 consists of everything in M1 and adds in savings accounts, money market accounts, and certificates of deposit (CDs) below $100,000. This is money you can still get to, but more work is required before it can be spent. It's this latter category, M2, that's sounding warning bells.
M2 is a monthly reported datapoint that's unlikely to be on the radar for most investors. That's because M2 has, with very few exceptions, steadily increased over time. A growing economy requires extra capital to facilitate transactions, so seeing M2 expand from nearly $287 billion in January 1959 to $20.73 trillion, as of October 2023, is no surprise.
What is shocking is when meaningful year-over-year declines in M2 money supply are observed. Since peaking in July 2022, M2 has fallen by an aggregate of 4.51%, as shown above.
Using a 2% year-over-year decline as somewhat of an arbitrary line in the sand, there have only been five instances since 1870 where M2 money supply has declined by at least 2%: 1878, 1893, 1921, 1931-1933, and over the past year and change. That's right, the current drop in M2 is the first notable decline since the Great Depression.
Get ready!!! Everyone should have at least 10% of their wealth in gold; not paper gold, but real gold.