Why Is Money Circulating Less Than It Used To?

When I began on Wall Street at EF Hutton back in 1985, there was a big monthly betting pool to guess the M2 number. Back then, it was all about money supply and the velocity of money. M2 money supply includes:

• Currency
• Demand deposits
• Checking deposits
• Savings deposits
• Certificates of deposit (less than $100,000)
• Money markets

No Velocity

For several reasons, the velocity of money or how many times cash changes hands in the economy has dried up dramatically over the past twenty-five years. Many blame a reluctance of banks to make money more available, in part to regulations and low interest-rates. Consumers are saving more in general and using cash to pay down debt or making investments.

The Fed watches these developments closely, although they don’t weigh in on decision-making like they once did back in the day. I still think it augurs well for the Fed to allow higher wage growth since the old canard that such increases automatically trigger inflation are now largely dismissed.

The Calm

Monday was an indecisive session with some nibbling in traditional value and selling in Energy as crude oil pulled back. It was the proverbial calm before the storm, as a bunch of economic data and earnings will impact the market before Friday’s big G20 summit.

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Market breadth was worse than the print of indices:

NYSE

• Advancers: 1,150
• Decliners: 1,805
• Up volume: 1.08 billion
• Down volume: 1.96 billion

NASDAQ

• Advancers: 941
• Decliners: 2,178
• Up volume: 873.8 million
• Down volume: 1.15 billion

Hey, Hey, We’re The Monkees

Here we come, walkin'

Down the street

We get the funniest looks from

Ev'ry one we meet

Hey, hey, we're the Monkees

And people say we monkey around

But we're too busy singing

To put anybody down

-Theme Song

Although it’s not as much fun as the old Monkees television show, the Federal Reserve talking heads always seem to come out in bunches, and these days, they get a lot of attention. Today’s line up has four Fed heads, including the recent Federal Open Market Committee (FOMC) dissenter James Bullard.

• 8:45: John Williams
• 12:00: Raphael Bostic
• 1:00: Jerome Powell
• 5:30: James Bullard

I’m looking for more information on potential rate cuts, and a new philosophy on helping the economy rather than waiting for a disaster.

Portfolio Approach

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Today’s Session

Lower Home Prices: Good

Lennar (LEN) is an early winner in the market after the company posted quarterly financial results this morning.

• Revenue $5.56 billion versus estimate $5.10 billion
• Earnings $1.30 versus $1.14

What stands out to me is the slower average selling prices in most regions, and a sharp decline in Texas, bringing the company average lower for the quarter.

New orders 14,518

• Volume +1%
• Value -4%

Backlog 19,061

• Volume 3%
• Value -10%

In addition to lower mortgage rates, the housing market needs to see prices cool off to help overcome exogenous factors.

I like the action or non-action in the market this morning…investors are holding back ahead of lots of key data and that big trade meeting.