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The Money Supply Grew in November, but the Bigger Trend Is Way Down

Money supply growth rose slightly in November, rising above October’s twenty-one-month low. Even with November’s rise, though, money supply growth remains…

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This article was originally published by Mises Institute

Money supply growth rose slightly in November, rising above October’s twenty-one-month low. Even with November’s rise, though, money supply growth remains far below the unprecedented highs experienced during much of the past two years. During thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent, well above even the “high” levels experienced from 2009 to 2013. As money supply growth returns to “normal,” however, this may point to recessionary pressures in the near future. 

During November 2021, year-over-year (YOY) growth in the money supply was at 7.0 percent. That’s up from October’s rate of 6.2 percent, and down from the November 2020 rate of 36.8 percent. Growth peaked in February 2021 at 39.1 percent.  

Historically, the growth rates during most of 2020, and through April of 2021, were much higher than anything we’d seen during previous cycles, with the 1970s being the only period that comes close.

The money supply metric used here—the “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).

M2 growth rates have been largely stable for the past sixth month, with the growth rate in November falling slightly to 12.7 percent. That’s down slightly from October’s growth rate of 12.5 percent.  November’s rate was well down from November 2020’s rate of 24.4 percent. M2 growth peaked at a new high of 27.0 percent during February 2021.

Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by periods of slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession. As recession nears, the TMS growth rate typically climbs and becomes larger than the M2 growth rate. This occurred in the early months of the 2002 and the 2009 crises. A similar pattern appeared before the 2020 recession. Money-supply growth fell throughout much of 2019, and the economy appeared headed toward recession. However, the “lockdowns” and stay-at-home orders of the covid panic accelerated this process and ensured a sizable drop in economic activity. Massive stimulus then pushed money-supply growth up to record levels.  

Fed Stimulus and Declining Loan Growth

Money supply growth was fueled in part by enormous amounts of deficit spending that occurred throughout 2020 and 2021. This led to the “need” for large amounts of monetization by the Federal Reserve. (This was needed to keep interest on the national debt low.) Indeed, as federal deficit spending grew throughout 2020, Fed purchases of government bonds increased substantially as well. Since June of 2021, however, federal spending has fallen well below its earlier peaks levels. This has allowed the Fed to scale back its monthly asset purchases, and the growth in Federal Reserve assets has been slowing—although there are still no plans at the Fed to actually decrease total assets:

assets

 

 

Moreover, year-over-year growth in commercial loans has been negative since March of 2021, further putting downward pressure on money-supply growth.  Commercial and industrial loans in the US were down, year over year, 7.9 percent in November, and have been in negative territory since April of 2021. 

Another factor in declining growth rates is declining totals in Treasury deposits at the Fed. These totals are factored into the TMS money supply measure—but not with M2—and this total has declined from $1.7 trillion in July 2020 to $133 billion in November.

Overall, such a sizable drop in TMS growth in recent months continues to point toward a weakening economy. As commercial banks make fewer loans, they create less new money. And as the Federal reserve buy fewer assets, it creates less new money to do so. That’s good for price inflation, but a drop in new money can be a big problem for zombie companies, and bubble industries that rely on a constant influx of new money. 

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Author: Ryan McMaken

Precious Metals

Larry McDonald: We Are In The Early Innings Of A Colossal “Growth To Value” Rotation

Larry McDonald: We Are In The Early Innings Of A Colossal "Growth To Value" Rotation

By Larry McDonald, author of the Bear Traps Report

As…

Larry McDonald: We Are In The Early Innings Of A Colossal “Growth To Value” Rotation

By Larry McDonald, author of the Bear Traps Report

As risk rises, correlation moves toward “one” across asset classes, and leverage comes out of equities. Case in point, margin debt is falling at the fastest pace since Lehman’s failure, from $350B to $200B in recent months.

At the same time tertiary parts of the market lead the pain brigade as the contagion oozes up towards the crown jewels. Yes, the “safe havens” are the last to give way. We are seeing tradable capitulation bottoms forming in the early pain trades (China Tech, Biotechs , Gold Miners, and some ARK names) while large cap and mega cap equities the beloved hide outs have some serious catching up to do in the weeks ahead.

The market’ s security blankets have become treacherous, while the perceived spots to avoid are coming out of extreme capitulation selling. In the blink of an eye value names are the MOST overbought in at least a decade. Overdone for sure in the near term BUT a sign of migration in the early innings of a colossal “growth to value” rotation. One which will last years, NOT months.

Since Q2 2020, at least five covid variants from beta to alpha to delta to omicron have arrived on the global stage. Each time growth stocks, and the U.S. dollar have been saved by the bell. As we pull back the curtain, the sight of “growth to value” tremors are picking up with intensity as they arrive on stage. The virus’ ability to come to the aid of the U.S. dollar, bonds and Big Tech is fleeting like a gazelle on the Serengeti plains. High speed in the midday sun, indeed.

Our most significant conviction call for 2022 is in the precious metals space. If the Fed actually gets aggressive with rate hikes they bring forward recession risk. That ensures a shorted hiking cycle a very BULLISH outcome for gold and silver miners. If they soften their proposed rate hike policy path from here that´s again is BULLISH gold and silver.

We see Goldilocks not too hot, not too cold lost in the woods in 2022. The team of Newmont NEM, Barrick GOLD, Hecla HL, and GDX equities are our highest conviction longs of 2022.

As we look at ESG side effects and energy a black swan just appeared in the sky over the weekend. The Tonga volcanic eruption has launched an enormous amount of ash into the atmosphere. The lessons from the eruptions Mount Pinatubo (1991) and St. Helens (1980) point to an impact on global temperatures for up to two years. Looking back to the Ben Franklin era in North America, there was a volcano that cooled the planet enough to ruin crops. An entire planting season in New England went bust. In the days and weeks to come we must keep an eye on follow on implications.

One thing is certain, after a near $2T partially ESG driven capex cleanse from oil and gas exploration levels at multi decade lows – any significant impacts on the demand side could trigger a “2008 like” super spike in oil. There is little room for error.

Nasdaq Risk

Contagion is moving UPSTREAM. The probability of a Nasdaq large cap equity crash, say a 20-30% drawdown is very high. We know most of the Nasdaq has already crashed, we recently noted 1300 stocks are off 50% or more.

The Fed is digging in tech stocks will be for sale until the Fed softens its stance; 3-4 rate hikes and QT (balance sheet run off) in 2022 gets you a 10k Nasdaq vs. 15.5k now.  We are coming into the Fed´s quiet period this weekend. On top of that, a long weekend and the taper is accelerating this week as well. Stocks are saying too much, Mr. Powell.

Large tremors rarely happen in isolation. Over the past decade, the Nasdaq has had 55 separate – 3% drawdowns in one trading day. 55 occurrences in the past 3,022 trading days is a probability of roughly 1.8%. However, 23 of these 54 occurrences happened within 10 trading days of each other (41.8%). While 36 occurrences happened within 30 trading days of each other (65.4%). This means although 3% daily drawdowns in the Nasdaq are a rare event, there is roughly a 67% chance we see one in the next ~30 days. Ten days have passed since the last 3% drawdown and although we didn’t get another this week, just a pullback 2.5% on Thursday.

Tyler Durden
Wed, 01/19/2022 – 13:40








Author: Tyler Durden

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Economics

7 Robinhood Stocks You Can Still Buy for Under $5

As one of the most controversial initial public offerings (IPOs) in recent memory, Robinhood Markets (NASDAQ:HOOD) basically attempts to become the TD…

As one of the most controversial initial public offerings (IPOs) in recent memory, Robinhood Markets (NASDAQ:HOOD) basically attempts to become the TD Ameritrade of a new generation. On the basis of brand awareness, the company has arguably succeeded exceptionally. Better yet, despite the boon in the equities sector, you can still pick up Robinhood stocks to buy that are priced below five bucks.

Prior to the platform popularizing the concept of gamified investing — or the use of psychologically satisfying graphics and sounds whenever a user completes a trade — financial analysts bemoaned that younger generations were not getting involved in equities like prior generations. However, due to the novel coronavirus pandemic, this narrative was flipped on its head — boosting the profile of Robinhood stocks to buy.

What’s more, the underlying platform made investing easier and far more accessible to younger folks, who may not have as robust an income as older generations. Through innovations like fractional share ownership, the list of popular Robinhood stocks were not always what you might term “garbage plays.” Indeed, quite a surprising number of equity choices are names that investors of any demographic would find sensible.

Nevertheless, that doesn’t mean Robinhood stocks don’t at times cater to speculative fare. Furthermore, the gamified platform has attracted criticism since the visual and audible gimmicks could psychologically induce poor decisions. And Robinhood itself has courted controversy over its alleged halting of meme-stock trades. Naturally, this action didn’t endear the platform to the social media crowd.

Like it or not, though, the investing interface has changed the underlying landscape. Should work-from-home initiatives be a permanent fixture in the professional landscape (personally, I think the jury’s out on that one), then Robinhood might have implemented a paradigm shift. Either way, there are still low-cost Robinhood stocks to buy even after all this madness. With that in mind, these seven companies stand out among the rest.

  • Borr Drilling (NYSE:BORR)
  • Hecla Mining Company (NYSE:HL)
  • Ocugen (NASDAQ:OCGN)
  • Globalstar (NYSEAMERICAN:GSAT)
  • OrganiGram (NASDAQ:OGI)
  • Lottery.com (NASDAQ:LTRY)
  • Allied Esports Entertainment (NASDAQ:AESE)

While cheap fare exist, sometimes, they’re that way for a reason. Moreover, you must ask yourself why these Robinhood stocks are below $5 when myriad other names soared into the stratosphere. In other words, exercise due diligence as these ideas are extremely risky.

Robinhood Stocks Under $5: Borr Drilling (BORR)

Source: FreezeFrames / Shutterstock.com

Admittedly, I was running out of ideas to fill the requirements of this list of Robinhood stocks under $5 until I came across InvestorPlace contributor Alex Sirois’ take on an identical topic but back in July last year. In it, he noted that Borr Drilling was a high-risk, high-reward idea that actually did really well, albeit with an initial sharp bout of volatility.

It turns out, BORR stock is still below $5, indeed well below as I write this. So thanks to Alex for helping a fellow contributor out!

As my colleague mentioned, Borr Drilling is a company that operates jack-up rigs, which are platforms capable of drilling wells to incredible depths. Obviously, due to the uncertainties back then of the pandemic and its resultant impact on the economy, multiple energy-related investments suffered choppy trading. That’s still the case now, although you can make the argument that with fears of Covid-19 fading, physical activity will bounce back.

In my opinion, there’s a strong possibility that companies can recall their employees. As I’ve argued about the burgeoning intersectionality of the global economy, workers should seriously consider going back. If so, oil demand would rise — thus making BORR stock one of the more viable Robinhood stocks to buy under $5.

Hecla Mining Company (HL)

Macro of silverSource: Phawat / Shutterstock.com

Sure, the past week has been excellent for Hecla, with HL stock actually climbing above the $5 mark. But when I said that these Robinhood stocks represented extremely risky ideas, I wasn’t messing around. Although I believe in the long-term fundamental concept undergirding Hecla Mining Company, that doesn’t necessarily mean that HL stock is going to be a solid investment.

Before you even think about pulling the trigger, you should note that HL stock has shed more than 13% in the trailing six-month period. That said, on a year-to-date (YTD) basis, shares have actually gained 11% –including a massive 12% gain just on Wednesday. True, the year is young. But believe me, it gets a lot worse for these cheapo Robinhood stocks from here on out.

According to its website, Hecla Mining is the largest primary silver producer in the U.S. It also carries historical clout, being the oldest North American precious metals mining firm listed on the New York Stock Exchange. Presumably, to keep this status going, HL stock will need to break out of its long-term horizontal channel that extends back to the 1990s.

It just might do that, eventually. Because money velocity is near all-time recorded lows, a possibility exists that the Federal Reserve can implement dovish policies down the line to counteract deflationary trends. That would be cynically positive for HL stock, though such a narrative may take years to pan out, if ever.

Robinhood Stocks Under $5: Ocugen (OCGN)

Smartphone with logo of US biopharmaceutical company Ocugen Inc (OCGN) on screen in front of website Focus on left of phone displaySource: Wirestock Creators / Shutterstock.com

Once known as a speculative biotechnology firm specializing in the treatment of rare eye diseases, Ocugen made a sharp pivot to Covid-19 vaccines, to the delight of the social media trading community and fans of Robinhood stocks. Admittedly, OCGN stock’s turnaround was nothing short of remarkable. Throughout most of 2020, shares were priced in literal penny stock territory.

Then, the company partnered with Bharat Biotech to co-develop and distribute the Covaxin vaccine candidate in the U.S. and Canadian markets. From there, things went wild, as many happy stakeholders of OCGN stock will tell you.

Unfortunately, the issue with Covid-19 vaccines is that whoever crossed the finish line first — or in close proximity to first place — would command the greatest addressable market. That means, at least in the North American segment, the best chance for success is to meet the needs of the vaccine hesitant or resistant.

Here, Ocugen may have a slight advantage in that Covaxin’s whole-virion inactivated approach is one with a proven, established track record. It’s possible that this could be attractive for those straddling the fence, especially as high-profile Covid-related deaths occur. Still, be super careful with this risky idea.

Globalstar (GSAT)

A photo of a satellite over earth.Source: AlexLMX / Shutterstock

On paper, you’d think that Globalstar would represent one of the best Robinhood stocks to buy. Per its website, Globalstar is a “leading provider of satellite solutions for business and individuals.” Its specialties encompass satellite commercial Internet of Things (IoT) solutions, mobile and field personnel connectivity, fleet asset tracking, equipment monitoring and improving business efficiencies beyond the scope of cellular-based platforms.

As you might suspect, Globalstar also covers myriad industries, ranging from government and public safety, energy, commercial maritime and agriculture. For instance, the oil and gas industry often features projects in far-flung places throughout the world where communication is impossible with traditional cellular networks. Through Globalstar’s satellite network, on-the-field workers can communicate with headquarters, improving business flow and enhancing worker and environmental safety.

Despite the obvious utility undergirding GSAT stock, it remains one of the worst-performing yet popular Robinhood stocks. On a YTD basis, shares are already down nearly 14%, which is not the start you’re looking for. Over the trailing six months, it’s down more than 29%. Keep in mind, shares trade for slightly below a buck at this very moment.

However, if you believe in the economic recovery narrative, GSAT stock may be worth checking out due to its wide-ranging relevance.

Robinhood Stocks Under $5: OrganiGram (OGI)

photo of a hand holding a marijuana joint that is smoking against a green outdoor backgroundSource: shutterstock.com/Tunatura

With OrganiGram, we’re going to dive into some of the truly risky ideas among Robinhood stocks. That’s not to say the other ideas didn’t feature significant problem areas. But you will certainly want to adhere to strict money management protocols if you decide to wade through these treacherous waters.

Founded in 2013, OrganiGram started its journey as a medical cannabis provider, per its website. Currently, the company focuses on “producing high-quality, indoor-grown cannabis for patients and adult recreational consumers in Canada, as well as developing international business partnerships to extend the Company’s global footprint.”

For me, the speculative angle for OGI stock would be the latter point about international business partnerships. In recent years, it’s not just the U.S. that is considering rethinking its botanical policies. Indeed, a surprisingly large number of countries are loosening their restrictions regarding cannabis.

However, will this translate to profitability for OrganiGram and OGI stock? That’s where I’m having difficulties with certain cannabis-related Robinhood stocks. For example, on a YTD basis, OGI is down almost 10%. In the trailing six months, it’s hemorrhaged more than 37%. However, if further legal breakthroughs occur — perhaps driven by economic need or desperation — OGI stock could be a lottery ticket.

Lottery.com (LTRY)

an excited man screaming with clinched fists as hundreds of dollars floats in the air around himSource: Shutterstock

Speaking of lottery tickets, I have an excellent segue for you, Lottery.com. Initially, I was surprised to see LTRY stock pop up as one of the popular Robinhood stocks priced under five bucks. But then I remembered that the controversial company launched its IPO via a reverse merger with a special purpose acquisition company (SPAC).

As you certainly know, SPACs have had their moment during the new normal. Folks couldn’t get enough of these shell companies, perhaps in part because they represent the poor man’s private-equity fund. Though ungenerously coined by Bloomberg, it does have a ring of truth. SPACs allow retail investors to acquire shares of private enterprises at the ground-floor level.

The kicker is that they’re incredibly dilutive due to the issuance of warrants. Long story short, SPACs have been underperformers relative to benchmark indices and that’s the case for LTRY stock. It’s down almost 25% YTD if you want to argue the point.

Now, the cynically bullish thesis for Lottery.com is that, as the buoyant equities sector confirmed, people love to speculate, even in times of crisis. Therefore, LTRY stock may perform well in the future. However, lotteries tend to prey upon the poor and disenfranchised, making them the antithesis of ESG (environmental, social, governance).

Robinhood Stocks Under $5: Allied Esports Entertainment (AESE)

A row of people wearing matching outfits and headsets play a video game together in a room with blue lighting.Source: NYCStock / Shutterstock.com

Honestly, I was about to include a different idea from popular Robinhood stocks to round out this list. However, after looking closely at its chart, I felt that the downside risk far outweighed the upside. Indeed, it was something I would even consider shorting with put options. So, in good conscience, I decided to go with Allied Esports Entertainment, another company that my colleague Alex Sirois mentioned.

Surely, I do not want to double-dip from someone else’s ideas. However, the framework for possibly viable Robinhood stocks under $5 is very limited in my opinion. So, I’d rather provide an idea that I find workable than something original purely for originality’s sake.

Of course, the basic thesis for Allied Esports Entertainment sells itself. The business centers on a live in-person social experience similar to what you find with sporting events but with video games as the focus. Now, I should say the thesis sells itself for the pre-pandemic era. When the Covid-19 crisis first struck, AESE stock naturally plummeted.

However, underlining the retail revenge phenomenon is a desire among Americans — and presumably most everyone else — to reclaim lost social experiences. That’s why Halloween-related sales were up massively last year: people wanted to feel normal again.

That sentiment can easily spill over in favor of Allied Esports, so AESE stock is definitely a name to watch.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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Author: Josh Enomoto

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Economics

Shades Of 2008 As Oil Decouples From Everything

Shades Of 2008 As Oil Decouples From Everything

While stocks – especially long-duration, zero-profit tech names – have struggled mightily…

Shades Of 2008 As Oil Decouples From Everything

While stocks – especially long-duration, zero-profit tech names – have struggled mightily in recent months (and are now down 50% from their all time high last February) as the sharp increase in real rates has put pressure on long duration pockets of the market, commodities led by oil have continued to rally.

But, as Goldman notes overnight, oil prices have not only diverged from equities, but also from US 10y breakeven inflation.

And while Goldman speculates that the decoupling between oil and breakevens suggests the recent energy rally might be more idiosyncratic and supply-driven rather than linked to broad reflation, an alternative explanation is that the rise in nominal rates has been misinterpreted and instead of real rates rising, it should be on the back of breakevens.

In either case, Goldman’s commodities team expects scarcity pricing likely to continue in 2022. As a reminder, yesterday we noted that according to the bank, while commodity prices have rallied materially in 2021, little has been achieved in resolving imbalances through either demand destruction or supply increases. As such, Goldman’s commodity analysts raised their oil price forecasts significantly through 2023 and expect Brent to reach 105$/bbl in 12m.

Likewise, option markets have started to price a larger upside tail for oil prices into year-end, with the implied probability of the Dec 2022 Brent future price being above 100$/bbl now standing at 20%.

Going back to Goldman, the bank writes that when looking at the performance across energy-exposed assets, the recent oil rally is similar to that in H2 2021…

… where energy-exposed credit and FX have lagged their beta to longer-dated oil prices, while US 10y breakevens underperformed since December. In contrast to most of 2021, energy equities outperformed oil prices, especially relative to the market (however that follows a period in which energy equities underperformed dramatically). Even so, most of the energy sector outperformance can be explained by the rise in real rates: indeed, as Goldman notes, “the sector lagged the oil market at first and later caught up during the value rotation triggered by the bond sell-off.”

And while Goldman will not bring itself to say it, the recent divergence between stocks and oil is reminiscent of another key period in time.

But first, a quick reminder of the current economic situation: last week’s core CPI rose 5.5%, above consensus and the highest level since 1991, while retail sales decreased by more than expected in the same month. Subsequent economic data including industrial production and the Empire Fed both came in far below expectations, suggesting that the US is already sliding into stagflation, or worse, a recession. Meanwhile, China, despite the Q4 GDP growth coming in well above expectations, the PBOC cut policy rates by 10bps.

Confirming the US economic slowdown which by now is obvious to all but career economists and central bankers is the latest Goldman economic surprise index, which just went negative in the US.

Almost as if the economy is redlining and just like one other notable period in time, China is preemptively turning on the afterburners because it knows that like that other time it will have to bail out the world.

What time are we referring to? Why 2007-2008 of course, when we saw a similar divergence between equities and oil, coupled with rising inflation, although back then inflation was nowhere near as high, not even in the housing market where the bubble was about to burst.

And another flashback: back then, Goldman – which just has published an outlier oil price forecast – sent shockwaves around the market with its March 2008 forecast for $200 oil.

Goldman got it halfway right… and then the inflation shock unleashed from soaring oil prices crashed everything.

So with oil storming higher and steamrolling everything in its path as money flees high-growth tech names and parks itself in the best performing assets of 2022 – oil and energy stocks – are we set for a repeat of the fireworks from late 2008?

Tyler Durden
Wed, 01/19/2022 – 13:00








Author: Tyler Durden

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