LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
All that money but where’s the beef!


 -- Published: Thursday, 10 April 2014 | Print  | Disqus 

TECHNICAL SCOOP

CHART OF THE WEEK

Charts and commentary by David Chapman

26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2

Phone (416) 604-0533 or (toll free) 1-866-269-7773 , fax (416) 604-0557

david@davidchapman.com

dchapman@mgisecurities.com

www.davidchapman.com

Source: www.stlouisfed.org

 

This is a picture of the “Velocity of Money” (US M2). In many respects, this is not a pretty picture. I suppose nothing that has been falling for upwards of 16 years can be considered a sound investment. The velocity of money has broken lows set upwards of 50 years ago. But this is not an investment. So what is the velocity of money?

 

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy and the GDP should be rising.

 

With falling velocity of money it would appear that fewer and fewer transactions are occurring. It would appear to suggest that consumers and business are saving their money rather than investing it. The above chart is for the US. The picture is the same in Canada, as the chart below would appear to indicate. The velocity of money has also been falling in the EU and Japan.

 

Source: Statistics Canada www.statcan.gc.ca, Desjardins Economics www.desjardins.com/ca/economic-studies/

 

So what’s wrong? Why is the velocity of money falling? It could just simply be fear, or a lack of confidence in the economy or simply that there isn’t any good place to invest. US corporations are estimated to be sitting on $1.6 trillion in cash. In Canada, the corporate cash hoard is estimated at close to $600 billion. One would think that with all that cash around that the economy would be booming but that has not been the case. The US and Canadian economies have been sluggish at best since the High Tech/Internet crash of 2000-2002. The financial crash of 2008 only added to the woes. The velocity of money topped in 1998 and has been on a downward swing ever since.

 

It all seems counterintuitive that the velocity of money should be falling even as the ECB, The Fed, the BOJ and the BofC have been maintaining low interest rates for years in order to encourage borrowing and keep the cost of money low.  The central banks have also pumped billions of dollars into the economy through QE and other stimulative measures. The result has been an explosion in the monetary base, a sharp rise in M1 but lower growth for M2 and sluggish M3. In an economies that are weighed down with debt, banks are reluctant to lend, consumers and corporations are unwilling to borrow so what happens the money instead has been used for speculation primarily going into risk assets such as the stock market. Corporations instead of investing in new plants and investment are sitting on cash hoards or buying back their own shares. Both are non-productive.

 

The situation in the EU is probably more dire than in the US. Austerity and tax hikes have more than offset QE. The result has seen a deflationary spiral where prices have been falling. Inflation has remained low in both Canada and the US as well. Or at least the headline rate of inflation has remained low. But even that may be bogus as Shadow Stats suggests www.shadowstats.com. The chart below shows the headline official CPI vs. the SGS alternate where inflation is calculated using the methodologies of 1990. Official inflation has been falling for years. The CPI is used to calculate all sorts of cost of living agreements and others. With an official lower rate of inflation, it has been used to suppress wages, pensions and many others and in turn, it has saved corporations and governments billions of dollars in payments they might otherwise have had to make.

 

Source: www.shadowstats.com

 

The cry of many is that all that money printing is going to cause hyperinflation. So far, it has been the opposite that has been the case especially in Europe. It has been deflation in Italy, Spain, Portugal and Greece. If the money is not going into the economy then the likelihood of hyperinflation is low. On the other hand, it can show up in the form of asset inflation where stocks markets in the EU, Japan, the US and Canada have been on a five-year rise.

 

The EU for the most part is in a recession having had to bail out Greece, Spain, Ireland and others. Those countries have been in a depression. Bringing in Ukraine could just add to the EU’s woes. Japan seems to be in a perpetual recession. The US and Canada have been in a low growth environment since 2000 at least according to the headline GDP numbers. Shadow Stats US GDP numbers suggest that the US has, like Japan, been in an almost perpetual recession since 2000.

 

One of the perverse effects following years of money pump priming, low interest rates and recessionary conditions is that the US$ has been falling while the Euro has been rising. Since peaking in June 2001 the US$ Index has fallen 34% while the Euro has gone up in value by 63%. Since Richard Nixon took the world off the gold standard in 1971 the US$ has gone through two earlier crisis of confidence. The first crisis went from 1971 to 1979 while the second crisis lasted from 1985 to 1995.

 

The first US$ crisis ended when Fed Chair Paul Volker hiked interest rates to 19%, the IMF intervened  and after that incoming President Reagan slashed taxes and cut regulations. The second US$ crisis ended when Japan agreed to slash interest rates, pump money into its moribund economy and lower the value of the Yen. In both instances the US$ was under attack and its position as the world’s reserve currency was being questioned. It is the same today where many are questioning the US$ as the world’s reserve currency and are challenging the position.

 

This has become especially true since the outbreak of the Russia/Ukraine crisis and the slowing of the Chinese economy. Because of sanctions Russia has threatened to drop use of the US$ for payment of its oil and gas. China has for years been in the process of setting a Yuan trading zone and recently they devalued their currency raising the ire once again of the US accusing them of being currency manipulators. The world has faced major currency crisis in the past including 1914 (British Pound Sterling), 1939 and 1971. Each crisis was followed by a tumultuous period of inflation or deflation and in the case of 1914 and 1939 global war.

 

 

 

For years the western economies have been pumping money into the financial system, maintaining artificially low interest rates and the result has been deflation in the EU and Japan against the backdrop of recessionary economies, low inflation in the US and Canada and sluggish economies, and a falling US$ and rising Euro. All are saddled with huge debts from government, corporations, financial institutions and the consumer.

 

The chart above shows the G10 distribution of debt. In some respects, it is staggering. By comparison, to the UK and Japan whose total debt to GDP ratio is around 900% and 600% respectively, the US’s total debt to GDP ratio around 300% seems paltry. The chart dates from 2011 so the current situation is most likely worse. All that money but where’s the beef.

 

                                                                                                                                

Copyright 2014 All rights reserved  David Chapman

 

General Disclosures

The information and opinions contained in this report were prepared by IA Securities. IA Securities is subsidiary of Industrial Alliance Insurance and Financial Services Inc.  Industrial Alliance is a TSX Exchange listed company and as such, IA Securities is an affiliate of Industrial Alliance. The opinions, estimates and projections contained in this report are those of IA Securities as of the date of this report and are subject to change without notice. IA Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, IA Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to IA Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.

 

Definitions

“Technical Strategist” means any partner, director, officer, employee or agent of IA Securities who is held out to the public as a strategist or whose responsibilities to IA Securities include the preparation of any written technical market report for distribution to clients or prospective clients of IA Securities which does not include a recommendation with respect to a security.

 

 “Technical Market Report” means any written or electronic communication that IA Securities has distributed or will distribute to its clients or the general public, which contains an strategist’s comments concerning current market technical indicators.

 

Conflicts of Interest

The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of IA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, IA Securities may provide financial advisory services for issuers. IA Securities will include any further issuer related disclosures as needed.

 

Technical Strategists Certification

Each IA Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.

 

Technical Strategists Trading

IA Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.

 

Dissemination of Reports

IA Securities uses its best efforts to disseminate its technical market reports to all clients who are entitled to receive the firm’s technical market reports, contemporaneously on a timely and effective basis in electronic form, via fax or mail. Selected technical market reports may also be posted on the IA Securities website and davidchapman.com.

 

For Canadian Residents: This report has been approved by IA Securities, which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.

 

For US Residents: This report is not intended for distribution in the United States. 

 

Intellectual Property Notice

The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.

 

Regulatory

IA SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).

 

Copyright

All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of IA Securities Inc.


| Digg This Article
 -- Published: Thursday, 10 April 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.