{"id":2994,"date":"2010-07-05T12:26:05","date_gmt":"2010-07-05T12:26:05","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2994"},"modified":"2025-03-27T15:49:03","modified_gmt":"2025-03-27T15:49:03","slug":"liquidity-backdrop-for-equities-still-cautionary-1","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2994","title":{"rendered":"Liquidity backdrop for equities still cautionary (1)"},"content":{"rendered":"<p>Recent stock market weakness was signalled by a rise in G7 annual industrial output growth above real narrow money, M1, expansion in February. Since 1969, world equities have underperformed US dollar cash by 5% <em>per annum<\/em> on average when output has grown more strongly than real M1, while outperforming by 11% <em>pa<\/em> when there has been &#8220;excess&#8221; money &ndash; see charts and earlier <a href=\"http:\/\/www.moneymovesmarkets.com\/journal\/2009\/12\/17\/liquidity-tide-beginning-to-ebb.html\">post<\/a> for more discussion.<\/p>\n<p>Between the end of March, when the February output \/ real money growth cross-over was known, and the end of June, equities underperformed cash by 13% (not annualised). <\/p>\n<p>Based on partial data, G7 industrial output growth was an annual 10% in May versus a 5% increase in real M1. Equities may struggle to mount a sustained rally until this gap closes.<\/p>\n<p>G7 output momentum has been <a href=\"http:\/\/www.moneymovesmarkets.com\/journal\/2010\/3\/12\/global-recovery-on-track-but-momentum-peak-approaching.html\">expected<\/a> to slow during the second half, based on monetary trends and history. This prospect has been confirmed by recent softer business surveys. A &#8220;soft landing&#8221; scenario might involve annual industrial growth moving down to below 5% by year-end. <\/p>\n<p>If annual real M1 expansion were to stabilise at 5%, therefore, the money \/ output relationship could generate another &#8220;buy&#8221; signal in late 2010. <\/p>\n<p>A &#8220;double dip&#8221;, of course, would hasten a new cross-over of industrial growth beneath real money expansion. In this scenario, however, &#8220;excess&#8221; money would probably flow into high-grade bonds and other &#8220;safe havens&#8221; rather than equities, which would suffer from earnings weakness. (A temporary slowdown rather than a double dip will remain the central case here unless real M1 contracts.)<\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/g7-ind-050710.gif?__SQUARESPACE_CACHEVERSION=1278335777132\" alt=\"\" \/><\/span><\/span><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/world-equity-050710.gif?__SQUARESPACE_CACHEVERSION=1278335801111\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recent stock market weakness was signalled by a rise in G7 annual industrial output growth above real narrow money, M1, expansion in February. Since 1969, world equities have underperformed US dollar cash by 5% per annum on average when output has grown more strongly than real M1, while outperforming by 11% pa when there has [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2994","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2994"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2994\/revisions"}],"predecessor-version":[{"id":5303,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2994\/revisions\/5303"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}