A Fundamental View

I have been avoiding what I prefer to post on, fundamentals, the last few weeks(as opposed to trading calls) because they haven't mattered for weeks / months. Even as muddled economic data at best and horrid economic data at worst gets reported, the market has gone up. So your left with just waiting and looking for signs of the top which is what my posts have cenetered on. The fundamentals continue to deteriorate on multiple levels.

An article from the Telegraph by Ambrose Evans-Pritchard points out the facts nicely. As I have mentioned before, he is a large bear but I have been watching these money supply numbers with growing alarm over the past few months. There is no getting around how fundamentally bearish this data is.

Money figures show there's trouble ahead

Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise.

and this really is amazing

If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23pc in August; Japan's were down 36pc; industrial production has dropped by 23pc in Japan, 18pc in Italy, 17pc in Germany, 13pc in France and Russia and 11pc in the US.

and

Fed chairman Ben Bernanke spoke in April 2008 of "a return to growth in the second half of this year", and again in July 2008 that growth would "pick up gradually over the next two years".

He could only have thought such a thing if he was ignoring the money data. Key aggregates had been in free-fall for months.

and

Tim Congdon from International Monetary Research says that US bank loans have been falling at an annual pace of almost 14pc since early Summer: "There has been nothing like this in the USA since the 1930s."

M3 money has been falling at a 5pc rate; M2 fell by 12pc in August; the Commercial Paper market has shrunk from $1.6 trillion to $1.2 trillion since late May; the Monetary Multiplier at the St Louis Fed is below zero (0.925). In Europe, M3 money has been contracting at a 1pc rate since April.

Private loans have fallen by €111bn since January. Whether you see a credit crunch in Euroland depends where you sit. It is already garrotting Spain. Germany's Mittelstand says it is "a reality", even if not for big companies that issue bonds. The Economy Ministry is drawing up plans for €250bn in state credit, knowing firms will be unable to roll over debts.