When will the Money Creation End?

Sun, Apr 13, 2014 - 7:38pm

That’s the big question, isn’t it after all?

“But there’s no inflation!” say those who accept official numbers, whose fund performance requires to look as good as possible and so on. “Au contraire!” say those who actually buy their food energy and don’t get paid to affect blindness, “It’s running at 5-10-15 (pick your percentage) !”

What can we do with this problem?

Here is one analyst’s quirky view....

That’s the Nikkei above, so it is, all 30+ years showing the final months of the Japanese bull, and the lost decade ... uh oh ... the lost three decades.

Now let’s have a look at the S&P which is surely totally different from the sorry tale of Japanese stocks shown above. Here it is:

It’s shown in red for clarity later.

Yep, just look at that HUGE bull market in the US! Totally different from Japan. Right?

Well how about this for a comparison between the two bear markets?

The relative more bullish US bear is clear, compared to the decline in Japanese stocks.

The price and time axis are not shown because I played around with them a bit. You see the US high came rather later than the Japanese high so December 1989 (Japan) is lined up beside March 2000 (US). I placed 13 years of S&P on top of 30 years of Nikkei, so this is about the character of the period rather than a precise day to day, or week to week comparison. It is to be looked at for similarity of form only, as the action-reaction sequence of Japan was at a slower rate than that of the US under Ben Bernanke, as I'll now explain.

I detect a sort of similarity, not exact of course, but nonetheless the larger swings seem to be present in both indices. The notable differences are the smaller swings vary, and the Nikkei trended down more strongly than the S&P which went sideways for the lost decade.

Mr. Ben Bernanke was a student of the 1930’s depression and he didn’t want deflation, so he got printing fresh money very quickly indeed, to replace the credit which evaporated during this period. The Japanese on the other hand stuck with a stronger Yen policy than the US did, and really only began to print fresh money pretty late in their depression.

So this means that the US index is being priced in a weakening dollar. Hmmm. If I detrend by using the CPI, I use a tainted inflation data in my work due to all the "special adjustments" which subvert this index from it's purpose. I could use the CRB to detrend, but well, you know, western Central Banks and commodity prices have this little thing going between each other that nobody below the level of TBTF CEO is supposed to talk about, and then only behind closed doors while drinking champagne and eating caviar!

“Oh well”, says I to myself “What about matching the two stock indices up and seeing how much adjustment it takes to do make that work?”

So I detrended the S&P until it lined up with the Nikkei over the earlier period. It took at 55% decrease in the SPX to do this, which is over a 13 year period which would be about three and a half percent per year of inflation difference between the two countries.

Here is the result in the S&P price chart for the past 15 years:

It looks worse this way by quite a bit, eh? But that’s a slanted or skewed display of the S&P.

Next I overlaid it on the Nikkei ...

... and a certain correlation now emerges visually. So maybe those central Banks are not so different from each other after all. The recent upturn in the Nikkei is representative of the introduction of Abenomics, or “QE” which used to be called “money printing”. I guess Bernanke would say that the 55% extra in US stocks is all the difference in the world, and he deserves credit for that. Maybe not from those who are on the hook for it though. But he took charge of a dire situation, and we are all still here, for whatever it's worth.

Given the correlation visible after my adjustment of the data, I would say it is clear that neither the US nor Japanese stock markets are out of their downtrend, after inflation is adjusted. They may have stopped falling in real inflation adjusted terms, but as stocks rise, the currency they are denominated in falls at the same time. So the benefit which remains is due to leverage of currency within the stocks, or the corporations themselves, and I suggest, (but without proof) that this leverage will someday unwind.

So if they are still in a downtrend in real terms, is there any chance that QE, Abenomics, or money printing will cease in the short term? I doubt it. There is a problem. It is now abundantly clear that money printing does not work to end depressions. How the central bank heads will overcome this remains to be seen, but they represent the financial services industry’s interests whether that is known or not, and since deflation is disastrous to fractionally leverage banks survival prospects, and since they are very aware of that, they will attempt to justify continued money printing as long as they can in my view.

But they won’t be allowed to print as freely as before. The days of trillions of easy money for the elite to go gangbusters buying up everything is sight are coming to an end. That leaves on the table one option: a continuance of money printing, but in reduced quantity, which seems to now be called “tapering”, but to me is just money printing at a reduced rate.

I assume the recipients of the money still to be created may be vetted somewhat more than during the past decade, and a certain small element of fairness will arrive, after all the politicians can see their popularity ratings plummet and are not so stupid as to omit a reaction to this. They have alternatives: war for increased control of voting public, or fair policies as an alternative defusing mechanism. We should expect a mix of both of these, I think.

As for stocks? The S&P is entering it’s third rotation correction since the 2009 low. The 2009 low saw a switch of smart money from bonds to bond-like dividend paying stocks and utilities. The first rotation, was a correction between April 2010 and November 2011, and this saw cyclicals absorb the capital coming out of the then more expensive defensive dividend paying stocks. The cyclicals then ran up. The second rotation was a minor correction in Q2 2013 saw mid caps take up the running and wider indices than the Dow begin to outperform. It’s likely that the correction we are seeing take place at the moment, which still has a couple of weeks to go, will see smart money leave in quantity and the public enter whether as individuals, or in some state mandated form, to take ownership of those stocks currently being distributed to smaller hands.

So how long can it last? Assuming it picks up after the present correction, or rotation, the final wave up could last a year if the public get lured in and push it. A more equitable disbursement of money printing to the people rather than the elite seems to be likely and that is a material factor if it works out. I have periods of July 2015 up to January 2016 which I am very interested in for this process. It seems a long way away, but that's the trouble with life, we crawl through big events one day at a time.

The smart money is not going to wish to play in the market much after mid 2014. Where will it go next? I believe rising soft commodities are already showing the early footprints of this invisible elephant, and there will be a rotation from softs to hard commodities. For now the precious metals are completing their bases and testing lows to demonstrate (or not) that their bear market is ending/ended and softs look good during Q1 2014. When softs are higher and no longer offer exceptional value, and alternatives are required to rotate into as the public spends their money and inflation manifests itself at the retail level, the time for PM markets will have arrived.

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.

This is not investment advice, but rather educational material for discussion, and entertainment. Readers are expected to obtain professional advice from a qualified member of the financial services industry before risking their assets in the financial markets. All the above ideas and discussion should be prefaced with the words: "in my humble opinion and as best I can tell from what I see at the moment ...."

About the Author


Apr 13, 2014 - 7:52pm

I even read it


Excellent as always Argentus!

​Edit: Bummer 3rd

Mr. Fix
Apr 13, 2014 - 8:00pm

2nd, and some charts that make sense.

It is nice to see a direct correlation between money printing, and equities, which brings us back to your original question, “when will the money printing end?" We should all know by now, that amounts to the $64 trillion question, and even if we don't know when it will occur, we certainly know what it means.

The end of the world as we know it.

Dagney Taggart
Apr 13, 2014 - 8:05pm


Blood moons.

So long Mystery Babylon.

Dagney Taggart
Apr 13, 2014 - 8:15pm

Satellite Skip

Sorry for wasting space. Now I'll try to unwaste it....

Unfunded liabilities, lenders, fixed income, and home-equity borrowers about to be smacked with cheap paper going home from abroad. Hope we are all cozy in inflation-protected real and mobile assets.

Tide going out. Sorry guys but I'm not naked.

sierra skier
Apr 13, 2014 - 8:27pm


Wow it has been a while. Now for the read.

The way you present the combined charts with inflation adjusted dollars is a strong representation of the loss of value in the US through inflation that isn't supposed to be there. The MSM continually rants oh the recovery with the proof in the markets awesome rise month after month. With that rise to new highs in deflated value dollars there is no true increase in value.

Thanks AM for a great post that gives us an easy to understand representation of the failure of federal reserve and banking policies.

Fred Hayek
Apr 13, 2014 - 8:31pm

The Military Industrial Complex kept the Peace Prize Winner from

So . . we as a nation have gone totally down the rabbit hole. Read the amazing excerpt written by Seymour Hersh from over at David Stockman's site:


Our pretentious dimwit great leader and his coterie of pretentious dimwits were absolutely intent on going to war in Syria in a huge, shock and awe way but, reading between the lines, were talked out of it by the joint chiefs of staff.

John Kennedy felt the military industrial complex was trying to push him into war with Cuba twice. And they got sociopath LBJ to go to Nam for them. Now we have the stupefying circumstance of our Nobel Peace Prize winner president, captain self-congratulation, having to be talked out of an insanely pointless attack on Syria by . . . the official heads of the military industrial complex. When a war is too stupid even for these people to back it up . . . !

Apr 13, 2014 - 8:33pm

Top Ten


"They may have stopped falling in real inflation adjusted terms, but as stocks rise, the currency they are denominated in falls at the same time. So the benefit which remains is due to leverage of currency within the stocks, or the corporations themselves, and I suggest, (but without proof) that this leverage will someday unwind."

So will a pigs tail but nobody knows exactly when.

Apr 13, 2014 - 8:45pm

@AlienEyes: I gave certain


I gave certain dates further down in relation to this.

"I have periods of July 2015 up to January 2016 which I am very interested in for this process. "

Though you say nobody knows when, and I admit it seems a long time to wait, those are not random picks, and I don't mean any time between the two.

And as always we must wait and see .....

Apr 13, 2014 - 9:13pm

so true, AM

As always, the devil is in the details....and the White House.

I'm still looking for the excrement to strike the impeller before 2015.

DeaconBenjaminFred Hayek
Apr 13, 2014 - 9:18pm

Seymour Hersh on Benghazi

So what Seymour Hersh is stating -- without giving credit -- is that Glenn Beck was right about Benghazi with Beck's reporting back before the 2012 election. Quelle amusant!

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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