“Money makes the world go ‘round – Still don’t nothing move but the money” – Cabaret the Musical (1990s revival)
Money – and the growth of money supply – influences everything in the capital markets and the economy. Booms, busts, recessions, recoveries. Fear and greed alike. All of this links back to the availability and growth of money and its supply. The chart below is both great and misleading. It’s great because no one likes going back and reliving the Panic of 1837 like me. It’s what I do. It’s misleading because the Federal Reserve wasn’t born until 1913 (in Jekyll Island, GA for those wanting to know) and the gold standard was the standard until the 1970s. Monetary policy is a different beast today than it was 50 years ago. Policy responses to crisis can be both bigger and quicker than when operating under a gold standard. In a world in which speed matters, global central banks have proven they now can go fast, in both directions.
Over the past 80 years we have had three big boom periods of money growth (M2 money supply growth to be precise) and three subsequent contractions of such. The early 1930s saw a rapid growth in money supply as the New Deal responded to the Great Depression. That was washed down by the recession of 1937. The 1940s saw money supply growth explode due to WWII – and then came the recession of 1948-1949. And we have the explosion of money brought on by COVID in 2020/2021. The timing of the next recession seems both imminent and widely expected. We are working off the excess money printing in 2020/2021 and are doing such at a very fast pace. And while we may get a recession, it is likely to be short and shallow. At the end of the day the absolute level of money is higher today than pre-COVID. It’s tough to have a deep and dark recession when liquidity still abounds and both personal and corporate balance sheets are in good order.
Money – not love – makes the world go round.
Source: GFD, Bloomberg Finance LP, Deutsche Bank as of April 25, 2023
Chief Investment Officer
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.
Comments are closed.