US Dollar Daily Shorter Term Chart And a Brief Comment on Estimated M3
Courtesy of Jesse’s Café Américain
If the dollar is going to manage a breakout from this counter-trend bounce, this is about the point where it should show some strength.
Perhaps the FOMC tomorrow will provide the impetus.
If it cannot move higher from here, the trend line may provide some support, but at a much lower level from here.
[click on charts to enlarge]
There is some excitement on chat sites from the dollar bulls with regard to the downtrending estimates of M3, as presented by our friend Bart at nowandfutures.com.
M3, as you may recall, is no longer tracked by the Fed, having discontinued its publication on 23 March 2006. But both Bart and John Williams estimate it from the available data on two key components, and extrapolations from prior relationship for the key missing variable which is Eurodollars.
We prefer to watch MZM as we have noted, and that chart is also showing a decline, but perhaps not as dramatic as the estimated M3.
There is a problem in estimated Eurodollars these days, and since that was the key driver behind the recent short squeeze as documented here many times, we tend to discount the reliability of the M3 estimates. We have discussed this with Bart, who realizes that he is estimating his best. We could do no better, and his work is above reproach, but based unfortunately on Federal Reserve opacity.
His site is a regular source of information, and his work is excellent. John Williams does great work as well on his shadowstats.com site. We just think that there M3 estimates are becoming less reliable with time.
We also have to caution the dollar watchers that the nominal levels of money supply are only one half of the function of value. Demand is the other half of that function, and with the US economy flat on its back, one would expect the nominal money supply figures to be declining. The velocity of money is cratering, and the liquidity that is in the system is flowing into an echo equity bubble, and not into productive economic activity.
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And as an aside, one of the sites which is trumpeting the declining M3 as a sign of their deflationary vindication actually banned Le Proprietaire from posting there three years ago for, wait for it, daring to mention M3 as an indicator to watch for signs of monetary inflation. M3 was judged by the head chef there to be an improper subject for discussion, and we confess, Le Prop did not submit to such perceived censorship gracefully. There can only be one temperamental chef at a time in a kitchen as their egos will not both fit on the counter. C’est la vie dans la cuisine.
All water down the drain, but it did bring a bit of a chuckle here while cleaning the choux de Bruxelles for dinner.
