Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

UK Inflation Analysis, M4 Money Supply Adjusted for the Velocity of Money

Economics / Inflation Dec 24, 2009 - 08:29 PM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleThis is the next in a series of analysis as part of my unfolding inflationary mega-trend scenario towards the formulation of an inflation forecast for 2010 and beyond. I aim to complete the whole scenario including interest rates, economy and implications of before the end of December which will be published as an ebook that I will make available for FREE. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent analysis on the probable inflation mega-trend at http://www.walayatstreet.com


UK M4 Money Supply

Whilst the mainstream press have been obsessed by headline M4 data throughout the past 12 months, however as I voiced in last years inflation analysis and forecast that the key to interpreting money supply data is to look at M4 adjusted for the velocity of money that implied imminent extreme deflation that has come to pass -

UK Money supply M4 (blue) has risen sharply from the 10% targeted low of mid 2008 to the current level of 16.6%, on face value this is highly inflationary and has been taken by many economists and market commentators to suggest much higher forward inflation. However the money supply adjusted for the velocity of money which takes into account the state of the economy as a consequence of the credit freeze tells a completely different story. The UK economy is now in extreme real monetary deflation of approaching -5%. The leading indicator of the implied money supply, is suggesting recent deep interest rate cuts of Novembers 1.5% and Decembers further 1% cut will lift future money supply growth out of extreme deflation, however it will still be far from supporting the levels north of 15% which accurately forecast forward inflation during 2008.

The M4 Graph shows opposing trends, it shows M4 falling from an extremely high level of near 20% that was jumped on earlier by the press to imply higher inflation, to now nudging below 10% to imply credit contraction deflation. However the real indicator of money supply shows the consequences of Quantitative Easing and near zero interest rates in that Money Supply adjusted for the velocity of money bottomed from a crash into March 2009, and it is only now that the money supply is breaking positive.

This suggests that the Bank of England and majority of economists remain mistakenly fixated on the headline M4 which has nudged below 10% and therefore continue with the policy of Zero Interest Rates and Quantitative Easing. What is remarkable in the most recent inflation data is the surge higher in both RPI and CPI (1.9%) despite weak money supply data, this strongly supports the view that the UK economy has drifted into a period of stagflation where models based on spare output capacity keeping inflation in check will fail ! I.e. we GET Inflation WITH spare capacity i.e. high unemployment, this is because the government is attempting to fill the output gap by increased public spending which is uncompetitive hence inflationary.

Therefore the expectations is for UK Money Supply adjusted for the velocity of money to continue surging higher and supportive of a strong trend higher in the RPI and CPI inflation indices that will leave the vast majority of the academic economists still mistakenly fixated on deflation scratching their heads.

I can easily see MS Implied surging higher to above 10% and M4 Adjusted passing above zero within the first quarter of 2010 on route to pre-credit crash levels during 2010, this also suggests a turnaround to some degree is also imminent in the M4 headline data.

UK Inflation Forecast 2009

Deflationary forces as a consequence of the the bursting of the asset bubbles has fulfilled the deflation forecast for 2009 as per the original analysis of December 2008 - UK CPI Inflation, RPI Deflation Forecast 2009 that forecast Deflation into Mid 2009 targeting RPI of -1.2% and CPI of +0.9% to be followed by an uptrend into year end back into RPI inflation of +0.9% and CPI of +1.6% as illustrated by the below graph.

To ensure you get the in-depth analysis and precise forecasts for 2010 and beyond in your email in-box ensure you are subscribed to my always free newsletter.

Source:http://www.marketoracle.co.uk/Article16059.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules