Chartology Redux: The latest charts that have caught Our Man’s eye...and why!

1).  The Dollar (as shown by the DXY Index)

How things change!  Three-Six months ago, and the poor old Greenback couldn’t find any friends.  Now it’s threatening its 2008 flight-to-quality highs.   

Why’s it interesting; well, the dollar not been particularly strong for the last 15 years.  Sure in 2000-2002 and 2008 it found a good flight to quality bid, but other than that it’s been pretty weak.  However, for the one other occasion of dollar strength think back to the late 90’s Asian crisis and how it was preceded by a strong dollar rally.

2). M2 and M3 collapsing.
The monetarists amongst us claim that the FED’s money printing ways in 08-09 will inevitably lead to hyperinflation.   Yet, over the last few months, M2 and M3 (as seen below, courtesy of Shadow Stats) have reversed course and are tumbling, in M3’s case at a speed not seen since the 1930’s.

Until we see a pick-up in lending, and the transmission of money from the asset markets to the real economy, we’re going to struggle to see the promised hyper inflation.

 3).  On the negative side, the Consumer Metrics contraction watch, is not pretty.

  
4). Adding to that, the leading indicators are tumbling. 
Given my broad thoughts on some of the lessons we should learn from Japan (here and here), this is a big reason why I have no real interest in adding to my equity exposure (specifically the Water Thesis and the unwritten, so far, Lead-Acid Battery thesis) – I think I’ll be able to get them cheaper.

5).  On the positive side, my favourite up-to-the moment snapshot of the economy, the ADS, shows no signs that its impacting the economy at the moment.  In fact, it suggests thinks are looking quite peachy.

 6). It seems like a long time ago, but we talked about the important of thinking about levels vs. changes. 
Yes, the changes are dramatic (especially when using year-over-year in a world in flux) and that makes for interesting news-copy and something for talking heads to prattle on about.  But it’s the levels that matter.  In short, it’s fantastic the unemployment claims are down from their peak and that auto sales have risen from their lows but just look at the levels.

(Below, courtesy of Calculated Risk)

I’m not saying that the levels cannot, will not or should not rise from here, indeed they may well.  However, for anyone whose base case is that they will then you’re already pricing in some level of GDP growth as your base case, and your risk management antennae should be well aware of that as more news comes out.