Velocity raptor - Financial Markets Outlook

11/19/2009

Investors remain concerned over the Fed’s exit strategy, with money printing and asset purchases subjects for anxiety
But whilst the narrow money stock has risen, broad money has not, and perhaps more importantly, the velocity of money is still falling
How “hard” each dollar is made to work is a good proxy for the demand / supply balance of “money”, and not surprisingly shows a strong correlation with bond yields
Currently, money is still not working hard, and is consistent with yields remaining low
But evidence from US banks indicates that lending conditions have tightened further – whilst growth is recovering…the current situation will not last forever.

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