Thursday, May 04, 2006
The Fed Isn't Printing Money
Despite the ravings of many goldbugs and other conspiracy theorists the Fed is not printing money. The chart of the M1 money supply has been flat for the past year. M1 money is the sum of bank notes, coins and checking deposits. It is in the direct control of the Fed. But that doesn't mean everything is just fine. If commodity prices are rising yet the money supply is not increasing to accommodate them we should get a recession instead of inflation. And that is my forecast which my investment strategy is based on. This morning I shorted more Starbucks - they release earnings tonight and the stock is looking very weak. Seems like there is little justification for the very high price/earnings ratio (around 50) of the stock given year on year earnings growth rates (around 10%). Yesterday I shorted more Apple Computer. That was a good move so far too. Each day we are seeing a pop-up in the markets in the morning and particularly in Google, only to see a sell-off in the afternoon. The myth is that morning price action reflects "dumb money" and afternoon price action "smart money". Could be some truth in that in recent days.
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3 comments:
I haven't seen anyone legitimate claim that the fed is printing dollars like mad. M1 may appear restrained but take a look at M2 and M3 (now discontinued.) M1 is all print currency, central bank accounts which can be exchanged for physical currency, and checking accounts. That is a small piece of the money pie.
Yes, you are 100% right - I did say "goldbugs and conspiracy theorists" :) Seems though to be a pretty prevalent notion in the online amateur finance community...
I personally emailed Federal Reserve on why they are stopping M3 publication. And they simply gave me crap, and claimed that they want to save money which was like 0.001% of their budget (like they don't print their own money). When I threatened to use unconventional means such as Freedom of Information Act to obtain information from Federal Reserve, this guy repeated again the exactly the same thing, and told me that he won't respond to ANY of my emails anymore.
I'm pretty sure that there is something HUGE going on.
frugal from www.1stMillionAt33.com
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