Are we looking in the wrong place?

Wall Street is looking for a slowdown. Some well known economists are predicting a deep recession.

The enclosed graph (click on the graph to enlarge) shows the growth of the money supply. Its trend tells a totally different story.

The money supply is up more than 10% at annual rate in the past six months. This is very strong growth. There is a lot of liquidity in the system coming from the global markets.

What does it mean? The growth of the money supply started increasing in the fall of 2006. It is predicting strong economic growth in the US in the coming months. Growth will be robust toward the end of the year.

If the trend of the money supply is correct, investors will need to change their investment strategy.

Stock sectors that are strong when the economy slows down (such as financials and bonds) do not perform well when the economy grows at a rapid pace.

It is is going to be interesting to see if the money supply is going to be right in spite of all the worries about subprime and housing crises. Time will tell.

More on http://www.peterdag.com/.

George Dagnino, PhD,

Editor, The Peter Dag Portfolio,

Since 1977