An Indicator to Watch

I have been keeping an eye on the St. Louis Adjusted Monetary Base since the financial crisis. Its data shows the funds deposited by banks with the FED. If you are wondering why no inflation despite QE, have a look at the chart below.

What it tells me is much of QE entered the FED and has yet to be made available to Main Street. Since the funds aren’t circulating, no inflation.

However, we can also see that since 2014, growth of the deposits has stalled. There was a breakdown in 2017 that produced another rally. Since then, we have meandered into new lows.

The chart below shows a clearer picture of the current situation. The AMB seems to be at crossroads, having formed a small congestion after the break to new lows.  If we see the break continue, especially is the break accelerates, it will mean we’ll probably see inflationary effects three to six months later. Once that starts, history shows that it will be hard to stop.

My cycle work shows a topping potential in US stocks in the last quarter of 2019.

I wonder what Powell will do if inflation starts to accelerate. He has shown he is no Volker. Let’s see what happens.

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