Market top?

[salmotrutta]

The Elliott Wave Theorists point to a wave 2 top.  

M2 hasn't changed for c. 1 year (exclusive of the Treasury's General Fund Account). But DDs have risen. I.e., the composition of M2 has changed. So, the "demand for money" has fallen, and thus velocity has risen. So, short-term money flows are rising at the same time long-term money flows are falling. Until short-term money flows reverse, a recession will not happen.

This is confirmed by Atanta’s gDpnow @ 4.3% and Cleveland’s CPI inflation nowcast for the 4th qtr. of 2022 @ 5.14%

The top depends upon Xmas spending.

[salmotrutta]

Long-term money flows, the volume and velocity of money, the proxy for inflation, is falling, while short-term money flows the proxy for real output is rising.

parse; date; inflation


07/1/2022 ,,,,, 1.195
08/1/2022 ,,,,, 1.280
09/1/2022 ,,,,, 1.143
10/1/2022 ,,,,, 1.094
11/1/2022 ,,,,, 0.851 drop
12/1/2022 ,,,,, 0.564
01/1/2023 ,,,,, 0.588
02/1/2023 ,,,,, 0.529
03/1/2023 ,,,,, 0.446

[salmotrutta]

Short-term money flows:


07/1/2022 ,,,,, 0.088
08/1/2022 ,,,,, 0.124
09/1/2022 ,,,,, 0.072
10/1/2022 ,,,,, 0.069
11/1/2022 ,,,,, 0.087
12/1/2022 ,,,,, 0.091 top
01/1/2023 ,,,,, 0.086
02/1/2023 ,,,,, 0.084
03/1/2023 ,,,,, 0.091
04/1/2023 ,,,,, 0.098

[salmotrutta]

M2


09/1/2021 20957.9
10/1/2021 21098.0
11/1/2021 21334.5
12/1/2021 21660.4
01/1/2022 21636.9
02/1/2022 21590.5
03/1/2022 21855.8 
04/1/2022 21860.3 peak
05/1/2022 21555.1
06/1/2022 21585.8
07/1/2022 21578.9
08/1/2022 21546.5
09/1/2022 21459.4
10/1/2022 21362.5

[salmotrutta]

FED WIRE transactions are up.

www.frbservices.org/resources/financial-services/securities/volume-value-stats/quarterly-stats.html

[salmotrutta]

The very slow decline in inflation is because Powell eliminated required reserves. Velocity has been rising at the same time money has been falling.
fred.stlouisfed.org/graph/?g=eTtE

Daniel L. Thornton, May 12, 2022:

“However, on March 26, 2020, the Board of Governors reduced the reserve requirement on checkable deposits to zero. This action ended the Fed’s ability to control M1. In February 2021 the Board redefined M1 so that M1 and M2 are very nearly identical. Consequently, it makes little sense to distinguish between them. In any event, the checkable deposit portion of M2 cannot be controlled now because there are no longer reserve requirements on these deposits. Here is the reason the Fed cannot control these deposits.”

Some Thoughts About Inflation and the Feds Ability to Control It.pdf (dlthornton.com)

As I said in response to Powell removing legal reserves: “The FED will obviously, sometime in the future, lose control of the money stock.” May 8, 2020. 10:38 AMLink

Money flows have risen largely as a result of deleveraging, consumer downsizing, & continuing balance sheet restructuring. I.e., during this process, the transactions velocity has risen because of dis-saving, where e.g., interest-bearing accounts have been converted into transaction accounts. Velocity should reverse its trend in 2023.

The personal savings rate is so low, that any Xmas splurge will trigger a recession.
fred.stlouisfed.org/series/PSAVERT