Since September, 2008 when the monetary base stood at $870 billion, the Fed has added more than $800 billion to the base.
With stimulus like this, the recession will be shortened by years, bringing the return to growth in the next year or two.
OTHER MONEY NUMBERS
MZM which had been stagnant, is now growing.
Here is the raw data.
Here is the rate of growth data.
M2 Growth Signals Economic Recovery
M2 is a leading indicator, signaling both financial and commercial expansion.
The rate of growth in M2 is soaring, approaching 10%
COMMERCIAL AND INDUSTRIAL LOANS
The problem now is to get banks to lend.
Though flush with cash, thanks to Fed actions, Banks are reluctant to lend to Commercial and Industrial companies for two reasons.
One, the uncertainty of every company's balance sheet in this world of Interest Rate and Credit Default swaps. Until this confusion is cleared away, very few financial institutions will take the risk of lending.
Two, economic uncertainty also brings a halt to lending. As economic activity collapses, even good companies might not be able to pay back their loans.
REAL ESTATE LOANS
The surprising fact is real estate loans are holding up well.
INTEREST RATES AND SPREADS
Credit spreads have stopped widening.
Of all the signs that the credit crisis is ending, this is the one most watched by forecasters.
The drop in BAA yields by 100 basis points is a sign that lower quality credits are finding buyers.
SUMMARY, TACTICS, AND STRATEGY
In summary, the Fed's aggressive expansion of the monetary base has shortened a 10 year depression into a 3 year recession.
Though it is not time to invest or lend yet, that time will soon be here.
Tactics
Continue money market arbitrage, extending deposit maturities to 2 years, and adding high-yield assets.
Spreads of 1,000 basis points on AAA quality credits are not uncommon.
Stragegy
Prepare senior management and the board for continued earnings enhancement thanks to the investment department. Focus attention on finding high-yield assets.
