Alan's Alert 6-22-2021

 

I wanted to wait until the H.6 money stock numbers were released before I put out today’s alert. Below is the money supply growth data.

We have an early peak this year at 20%, which occurred on week 14. The money supply then hung at 17-18% for weeks 15-20, we have since declined to 13% and now 12%. Below is a close-up.

You can see that we typically have a decrease in the supply from weeks 16 through 30. This is the “sell in May and go away” adage on Wall Street. Week 16 lands in the middle of April and week 30 is the end of July. The doldrums don’t truly stop until week 41 which is the first week of October.

Here’s a chart, courtesy of LPL financial, that illustrates the point nicely.

The S&P struggles during the summer months. The elephant in the room is that giant spike in July in the past ten years. Do traders come back from vacation and bid up the S&P for a month or does that small spike in money supply do the trick to keep the markets going until the fall?

The Fed is on tour this week and the fireworks have already started. 

 Robert Kaplan the Dallas Fed President started with a bang saying, “If you wait too long to taper and your imbalances worsen, you may find yourself needing to take extra steps down the line.”; “It’s unrealistic to expect the US dollar to be the world’s reserve currency permanently.”; “It would be significantly healthier to make a change to asset purchases sooner rather than later”; and “The Fed’s overnight repo rate adjustment is mostly a technical problem.” 

Jim Bullard the St. Louis Fed President followed up the act with, ““This is a volatile environment, and there is upside risk to inflation.”; “We’re in a scenario where bubbles could form, which is part of a larger debate”; “The Fed should set up a taper that may be altered if necessary.”; “Markets are assuming the Fed won’t lift rates with tapering.”; “I don’t see how interest rates in the US could get substantially higher than they are in Europe and Japan”. 

NY Fed President John Williams then stated, ““The Fed reverse repo rate facility is operating perfectly.”; “It wouldn’t be a problem if reverse repo usage grew much more.”; “Following the FOMC meeting, there was no minor taper tantrum.”; “The average inflation target is not based on any methodology.”; “The economy has not sufficiently recovered for stimulus to be removed.”; “The economy is improving at a rapid pace and has rebounded faster than expected, with a very positive medium-term outlook.”

Wow. So far, the Fed has threated the reserve currency status of the dollar, admitted that bubbles could be forming in the economy, indicated that tapering the asset purchases may not stop even if interest rates get raised, and that the Fed doesn’t have a true inflation target or a method to their madness.

What could we possibly have for an encore? How about this:

“The Fed will do everything possible to help the economy recover for as long as it takes.” -Jerome Powell

Now we know that the Fed only has one tool in its arsenal, so let’s help decode what Mr. Powell was really saying.

“The Fed will do everything possible to help the economy recover print money for as long as it takes.”

For the Fed, money truly does grow on trees. I feel bad for the Fed speakers that chose to close out the week. They have a tough act to follow.