Stocks, Dollars, and Gold
Continuing my look at currency value (see https://www.tradingview.com/chart/M2/VicjnWYB-Printing-Money-Interest-Rates-and-Equity-Markets/), here's several ways of looking at "How much is that asset worth?"
The green/red price bars are the
S&P 500. The green line is 
M2 money velocity , one measure of value and dilution of the US dollar. It's basically how many times our GDP could "buy" our money supply. It's interesting to notice how public sentiment about national debt aligns with this index. I'm not taking a stance on that policy, just noticing that shortly after a presidential campaign made had the public up in arms about national debt, the value of money, as measured by M2V, rose, as did the market. Conversely, shortly after a later campaign that had the public up in arms about government surplus, that same measure went down.
The hypothesis I'm trying on is, does money velocity--the ratio of money to goods--and everything that says about the value of US Dollars correlate with trend changes in the equity markets?
The market dip that started in late 2000 would put equity investors entering at that time in a loss they wouldn't recoup, if they stayed in the markets, until mid 2007.
By that time, money velocity had been trending down for over a year, and very quickly the market dipped again, causing losses that a long-term position wouldn't recover until Q1 2013.
So far, M2V seems a fair predictor of market turns, but this doesn't hold true after the 2008 crash of the housing and mortgage bubble. Money velocity continues down, but the market takes off. Some would argue that a bigger crash is setting up; others, that the correlation is meaningless.
What's a safe investor to do? How about gold? I've added gold as the yellow line in the chart. This isn't the actual price (spot price) of gold, because I couldn't find that symbol on TradingView. Instead it's the nearest contract, the price traders think gold will have in the near future.
I add gold to the chart because it's often seen as a safe haven against market and currency crashes, and because gold maven Adam Baratta writes about the sort of money supply issues I've written about in his 2018 book, Gold is a Better Way. It's an interesting (and very bearish) look at the equity and debt markets--just remember it's written by someone who sells gold and whose final words in the last chapter of his latest book are, in bold, "Buy Gold Now."
What I'm asking myself is, if I've got a lot of retirement savings in equities and I'm getting nervous about the stock market, how do I play it safe for awhile? Notice how gold did better than the SP500 during the latest crashes. That sounds promising...until you look at how it also trended positively with stocks during their recoveries. If you're looking for a non-correlated asset, this doesn't look like it. Instead it looks like a way to miss out on whatever benefits current fiscal policy and market bias are giving--note how gold missed out on the S&P's gains once it was back at pre-2008 levels.
The green/red price bars are the
S&P 500. The green line is M2 money velocity , one measure of value and dilution of the US dollar. It's basically how many times our GDP could "buy" our money supply. It's interesting to notice how public sentiment about national debt aligns with this index. I'm not taking a stance on that policy, just noticing that shortly after a presidential campaign made had the public up in arms about national debt, the value of money, as measured by M2V, rose, as did the market. Conversely, shortly after a later campaign that had the public up in arms about government surplus, that same measure went down. The hypothesis I'm trying on is, does money velocity--the ratio of money to goods--and everything that says about the value of US Dollars correlate with trend changes in the equity markets?
The market dip that started in late 2000 would put equity investors entering at that time in a loss they wouldn't recoup, if they stayed in the markets, until mid 2007.
By that time, money velocity had been trending down for over a year, and very quickly the market dipped again, causing losses that a long-term position wouldn't recover until Q1 2013.
So far, M2V seems a fair predictor of market turns, but this doesn't hold true after the 2008 crash of the housing and mortgage bubble. Money velocity continues down, but the market takes off. Some would argue that a bigger crash is setting up; others, that the correlation is meaningless.
What's a safe investor to do? How about gold? I've added gold as the yellow line in the chart. This isn't the actual price (spot price) of gold, because I couldn't find that symbol on TradingView. Instead it's the nearest contract, the price traders think gold will have in the near future.
I add gold to the chart because it's often seen as a safe haven against market and currency crashes, and because gold maven Adam Baratta writes about the sort of money supply issues I've written about in his 2018 book, Gold is a Better Way. It's an interesting (and very bearish) look at the equity and debt markets--just remember it's written by someone who sells gold and whose final words in the last chapter of his latest book are, in bold, "Buy Gold Now."
What I'm asking myself is, if I've got a lot of retirement savings in equities and I'm getting nervous about the stock market, how do I play it safe for awhile? Notice how gold did better than the SP500 during the latest crashes. That sounds promising...until you look at how it also trended positively with stocks during their recoveries. If you're looking for a non-correlated asset, this doesn't look like it. Instead it looks like a way to miss out on whatever benefits current fiscal policy and market bias are giving--note how gold missed out on the S&P's gains once it was back at pre-2008 levels.
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