S&P500: Accounting for the Money Supply

Hey everyone and thanks for jumping back Into the equity verse today we're going To talk about the S P 500 accounting for The money supply M2 if you guys like the Content make sure you subscribe to the Channel give the video a thumbs up and Check out the sale on into the Cryptivaris premium at into the Cryptiverse.com let's go ahead and jump In so normally when we talk about the S P 500 we do not take into account the Money supply but I do think it is a Useful exercise to go through this we do Talk about the money supply and how it Relates to things like the S P 500 and Bitcoin maybe about once a quarter or so Um and that's probably about the Frequency that I will I will continue to Talk about it now if you're unfamiliar With with sort of the The View here on Expectations by the S P 500 going into August and September the general Expectation was that we would see a Sizable pullback and the reason for that Was not necessarily based on anything Related to fundamentals it's not even Based on a theoretical recession Although I do contend that at the end of This business cycle after the Uninversion of the yield curve or maybe Even before we could in fact go into one But the idea of this correction Specifically was more so a seasonal Thing right

So before we get to the money supply This move here was more so a seasonal Prediction if you look at the Year-to-date Roi of the S P 500 you can See this is 2023 and we talked about how If you average out all of the prior Pre-election years you can see that There tends to be a fairly sizable drop Around this time and if it does go back Down to the average then it could still Continue to fall And it's normally this drop by the S P 500 that knocks crypto into a downtrend For the second half of the prehabbing Year because Bitcoin Falls below the 20-week SMA which it has The s p hasn't even reached it yet but It could and it probably will okay So You have the S P 500 with a fairly Sizable correction Whether or not the s p rallies in Q4 Will be mostly dependent in my opinion On if if the recession Risk materializes By that point or if it gets pushed out Into 2024 right and it's really hard to Say there's a lot of things that could Pull the recession risk forward but There is still a chance that the economy Remains you know remains okay for the Rest of the year but if this continues To drop this quickly without finding any Support anywhere then you could start to See the labor market get affected now

When you look at the S P 500 by itself You can see that we had a peak in 2020 Here so we recently we had this peak We had a peak up here in 2021 and 2022 And then we've most recently had this Top Now the fascinating thing about this is The way you just look at it based on its US dollar valuation these Three Peaks Are very different one Peak was at Around 3 400 another Peak was at around 4 800 and then at least this local high Whether it's the sort of the macro Peak For a while or not remains to be Determined but it's at 4 600. So they're all very different in where They ultimately peeked out But then there's this idea of the money Supply or M2 and you know this is what It looks like and you can see that Really for the longest time we were on a Fairly predictable path right M2 was Increasing at a fairly predictable pace And the argument that we you know we Talked back over here is that there's Going to be some type of reversion back To the trend and that it just if we Continue even at this pace even if it Doesn't go down if it just were to say Goes sideways you know it would take Until about mid to late 2024 just to get Back to the prior Trend if if the money Supply were to remain relatively Constant now the last couple of months

Uh M2 has started to go back up again But in general if it if it more or less Carried on with this trend it would take It you know about another year maybe a Little bit longer just to get back to The trend now if you look at the money Supply Um And actually let's go not let's not look At the rate of change first you can see That this is on a linear scale you know We we saw the money supply contract just Recently started to expand again but What's really interesting is if you look At the year over year percentage change You can see that it has in fact gone Negative one of the reasons for that of Course is because the this change was Pretty significant right so there's Again there's this idea of mean Reversion and you can see that here There's not really a case in recent History where we went negative it has Happened but you'd have to go back more Than you know more than just the last 60 Years or so but if you adjust for Inflation you can see there were periods Where where we did see this actually go Negative Now the interesting idea behind the Money supply and as it relates to stocks Is Are stocks going up Because of something fundamental

Or are they going up because the Currency that they're being valued in is Being debased right so If you print trillions and trillions of Dollars well that money has to find a Home and therefore asset prices go up Right and then everything goes up and Then you get a lot of inflation and then We have to get rid of So the idea of course being well what if You take the S P 500 and divide it by M2 The money supply does that give you An interesting chart because remember These Three Peaks are nowhere close to Each other When you don't account for the money Supply But when you do account for it It tells an interesting story So accounting for the money supply these Three Peaks okay right these three February of 2020 . let's line it up right February of 2020. And then we'll look at this one January of 2022 And again right January 2022 right here And then this last one was July 23 July 23 I mean you can even you know we Could we could overlay it on the same Chart if we wanted to we could just put The s p on here and you could see how You know all three of these Peaks were At very different levels against the US

Dollar But when you account for the money Supply They were all at the same level Right here right so this peak Was more or less the same as the 2021-2022 peak isn't that fascinating That we saw such an impressive rally by The S P 500 you know from this low here All the way up here and just look how Far we surpassed the the pre-pandemic High From this high The market went up 42 percent right 42 Percent But look at the money supply From March of 2020 Look how much it increased I mean this Is you know this is is is is quite the Sizable move I mean you know when you're When you're looking at this in February 2020 it was at 15.27 trillion And then back over here in March of 2022 It was at around almost 22 trillion look At this it increased over 40 percent So yes the s p also increased by over 40 Percent When you take out into This peak is the same as this one so Once you take everything into Consideration They're the same thing And I know it's kind of weird to wrap Your head around because it's like well

That doesn't really make sense I mean You know the the price went up 42 Percent Yes so did a lot of things right I mean Think about everything in life that Became so much more expensive So there's this idea that increasing Prices in or increasing asset prices can Often be tied to this just the Debasement of the currency that they're Being valued at And so If you're not an investor right if you Just have your money sitting in an Account and and it's you know I mean now You can actually earn a reasonable yield But way you know just a couple years ago If you're only earning you know 0.25 or Less then you're really just watching Your purchasing power go down right so It's almost like by investing you can at Least try to hope to keep Pace with it You know the investors over here that That were you know that we're back over Here at this pre-pandemic high that were Invested When you account for all the money that Was printed this peak was the same And then what's more interesting is that We then rallied to the same point in 2023 now look at this this is another Interesting thing look at this low this Low that we just had Happens to also be where where it

Bottomed out in late 2018. so you have An example here Where You have the midterm year Where we bottomed out at this level And then this midterm year You know the midterm the the in the Midterms where we bottom out at the same Level So the question is is where do we go now Right I mean do we get a larger Capitulation down like a 2020 style Thing that happens maybe in 2024 do you Know does it come back down to this low Does it just come back down and then Bounce back up and then break through I Know some people might look at this Chart and say that it's bullish because You're putting in you know you're you're Putting in some higher lows here right So you have a low you have a higher low And the idea is eventually it could Break through what's more interesting is When you take this over right if you if You sort of draw this line here you can See that this was the high before the Financial crisis hit And if you think we've never broken Through this level before then you would Actually be mistaken if you go back far Enough in time you'll see that once upon A time the.com crash was well above Where we currently are Well above from the current valuation it

Was up another 50 55 56 that shows you Just how crazy the market was back During the.com crash right it was it was A very crazy Market back then uh I I Mean of course I didn't really Experience it as an investor But certainly a crazy market and you can See that really pretty clearly on on This chart just to understand how high It went up only for it to ultimately uh Come come crashing back down so when we Look at this chart We have to think about well what if it Comes back down to this level right Where would that put it where would a 22 Drop put it now there's no guarantee That it goes back down to that level it Might not but just as an exercise if it Were to go back down to that level where Would it put the S P 500 well we can't Really know the answer to that question Because the money supply is changing but Let's suppose the money supply is Constant okay so let's suppose that the Money supply goes sideways like it just Sort of hangs out in this area where Would a 22 correction put you on the S P 500 from the current valuation A 22 percent drop gets you to a new low But guess where it gets you It gets you to the 2019 Or the 2020 the the pre-pandemic high is Where it gets you So let's let's zoom in on this really

Quick 22 down draw the line across that gets You to the 2019 high now what would be Interesting about that is that when you Account for M2 it would be the same Level as what we saw back in October 2022. But if you don't want to count for M2 it Gets you lower than where you were in October 2022 and one of those reasons is Because the money supply went down And so if we do get that correction then It could be a slightly lower low That corresponds to the pre-pandemic High Now there is some precedent for this Especially during inflationary times if We were to go take a look at at Bear Markets of the past right bear markets Of the past you'll see that one of them So this is the the current one and this Is assuming the bear Market is still Going on right which there's always a Chance that it's not right if this if This is the low there's a chance that It's not but let's suppose that the bear Market is still going on and you were to Compare it to other periods of high Inflation like coming out of World War II from 1946 to 1949 what do you notice You had some lows down here you had a Pretty sizable rally and then you came Back down and you put in a slightly Lower low just slightly though

A slightly lower low A slightly lower low than the S P 500 Today could correspond to 33 3400 which Is also The pre-pandemic high which would get You To the same evaluation that we were at In 2022 And in 2018. Just an interesting way to look at the Market okay Um and I know I mean I know you're you Know I don't expect you to take this to The bank right there's always a chance That this is just a seasonal correction In the s p and then it rallies in Q4 and Then maybe it just comes back up to These levels kind of like in 2021 and 2022 you see that it came up here we saw A pretty big correction Around the same time right like in August and September and then come October we rallied back up to then put In the final high before it really Rolled back over so there's a chance That that could play out right where you Just get sort of this initial correction You then rally in Q4 only for it to fall Back over again but I do want people to Be aware that something like this could Play out and it is certainly possible That the s p could put in a lower low And I think the way in which it would Happen is if we get a recession right if

A recession materializes at the end of This business cycle which is what the Inversion of the yield curve would Suggest ultimately Um and and one of the things about Recessions is that they're notorious for The stock market putting in a new low That's typically what happens during a Recession is the stock market sells off Puts in a new low it doesn't have to be A significantly lower low right it could Just be a hundred dollars lower it could Be a couple hundred you know maybe not I Shouldn't say dollars right but it could Be 100 low it could be 200 lower could Be a thousand points lower Um you know whatever right I mean it Just whatever it could be uh there's a Range there it doesn't have to be you Know 50 percent lower than the prior low It could be five percent lower or ten Percent lower so just something to Consider as we navigate uh these these Markets and and just keep in mind that If we revisit this low and the money Supply stays constant then actually it Corresponds to a lower low on the S P 500 but the only reason it would Correspond to a lower low is because the Money supply has gone down since the end Of 2022. and really it's been going down You know since uh early on in in 2022. Hopefully you guys enjoyed the video if You do make sure you subscribe to the

Channel and give the video a thumbs up And do remember we do have into the Cryptoverse premium we are still running The sale check that out we have a lot More charts than just cryptocurrency as You can tell uh in the videos link to That is in the description below thank You guys for tuning in I'll see you next Time bye