Alan's Finance Blog

The Personality of Stock Market Waves

The Personality of Stock Market Waves

Elliott waves don’t merely reflect prices plotted over time. Each wave
has its own “personality.” Listen to this video by EWI’s Wayne Gorman
to learn more about the psychology behind the waves and how it affects your
investment decisions.

This video was taken from the free Club EWI video series: Learn the Why,
What and How of Elliott Wave Analysis. This 3-video series is a great way
to get started with the Wave Principle. You can get these videos free with
a Club EWI Membership.

Watch your free videos now >>

Already a Club EWI member? Access
the video series Learn the Why, What and How of Elliott Wave Analysis here.

Quantitative Easing is Nothing New

By Mike Hewitt

The term ‘quantitative easing’ is just the newest term to describe the on-going central bank policy of increasing money supply.

Greetings. There has been an increasing amount of news covering the activities of The US Federal Reserve and other central banks. The newest expression being bantered about is “quantitative easing”.

Simply put, quantitative easing is a phrase, more a euphemism really, to describe the process of increasing the monetary supply – printing money so to speak. It is a continuation of actions that central banks have been engaged with ever since their creation.

I would like to show a chart of monetary expansion since 1971 to the present. We will begin with what people most typically think of when they think of money – that being banknotes and coins in public circulation. Economists call this M0.

Here is a chart showing a timeline from 1971 to the end of 2010. Along the vertical axis is a dollar figure.

The first currency shown is the US dollar. By the end of 2010 there was 920 billion in US dollars. It is estimated that perhaps up to two-thirds of this circulates outside the borders of the United States.

Our next currency is the Japanese yen. Over 86 trillion yen circulates among the public. This represents an amount equivalent to more than US$1 trillion.

The euro is represented in blue. There is just fewer than 840 billion euros in circulation – equivalent to US$1.1 trillion. These three currencies represent nearly 60 percent of the value of all physical paper currency within the public domain.

The fourth most significant paper currency is the Chinese renminbi, also known as the Chinese yuan.

The remaining 131 currencies shown in this chart are represented in grey. Together, these 135 currencies amount to US$5.2 trillion.

At the end of August 1971, when the US dollar was taken off the last vestiges of the gold standard, the total amount of currency was equivalent to US$171 billion. This means, that over the last 40 years, the nominal valuation of all paper money has increased by more than thirty times.

But, there are also other types of money. Namely, demand deposits and savings accounts. Economists classify different types of money using the following convention.

This table shows the different types of money commonly defined by economists. The bottom represents the most liquid forms of money, which are used primarily as a means of exchange. The broadest measure of money defined here, is M3. This includes forms of money used as a store of value.

Let’s now return to our first chart. We will re-label all of these circulating currencies as M0 and represent them in blue.

Now we will add the global estimates for all demand deposits in order to compute M1. As you can see, the amount of money held in demand deposits exceeds that of currency in circulation by nearly four times.

To this amount of money – equivalent to US$25 trillion – we will now add savings accounts and small time deposits. This is M2. The amount of money in M2 is even greater than that in M1.

Finally, we add in those monies captured under M3.This brings our estimate for the total amount of money to over US$75 trillion.

I hope these charts illustrate the magnitude of monetary expansion that has occurred over the last forty years. Every increase to the existing money supply dilutes the value of the currency already in existence. In other words, those people holding paper money lose purchasing power to create value for the new money. It is, in effect, a transfer of wealth to recipients of newly created money. Quite simply, it is theft.

Common usage of the word “inflation” is the phenomenon of rising prices. I hope that these charts have shown that this price inflation is not a natural process of the free market but, the result of deliberate policy, namely the central bank policy of ever increasing the money supply.

May you find these words helpful in preparing yourself. Thank-you for watching.

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices. Mike can be emailed at mikehewitt@hotmail.com

The Economic Crisis No One Saw Coming: A Convenient Untruth

The Economic Crisis No One Saw Coming: A Convenient Untruth

August 9, 2010

By Elliott Wave International

The single most convenient untruth about the 2008 (and counting)
financial crisis is that it was unforeseen. For two years policymakers
have insisted “There was no way to know ahead of time” that
the liquidity boom would come to a screeching halt. Back in November
2008, in fact, the usually tight-lipped Queen of England herself
publicly described the turmoil of international markets as “awful” and
openly asked a panel of experts from the London School of Economics “Why
did nobody notice?“

Her Majesty is right: Most financial authorities did
NOT notice the crisis before it was too late. Comedy Central’s “The
Daily Show with Jon Stewart” of all places provided the
most poignant evidence: A March 2009 video montage
shows executives and economists from the world’s leading financial
firms repeatedly forecasting continued upside strength in stocks,
plus renewed bull market growth in financials — right as debt
markets came unhinged and the US stock market headed into a 50%-plus
selloff.

Dubbed the “8-Minute Rap” (after the “18-Minute
Gap” of Nixon’s Watergate tapes), the Daily Show video feature
sent an equally powerful message, as the clip
below makes plain.

Yet even as the mainstream authorities failed to detect the
economic earthquake moving below their own feet, somebody did “notice” well
in advance. That person was EWI’s president Bob Prechter.

The clip below is from a 2007 Bloomberg interview.
Clear as PLAY, the foreseeable nature of the crisis emerges from
Bob’s October 19, 2007 interview.

As the historic trend change began to unfold, Bob issued this
timely insight:

“We’ve seen the first crack in the credit structure
with a huge drop in commercial paper… These are the harbingers
of a change toward the downside for the stock market, commodities
including oil, and the debt market itself.”

Don’t believe the convenient untruths. Get objective market
analysis today. Download
this free report that contains valuable market forecasts directly
from the desk of Bob Prechter.