FED’s monetary base update

Since late 2008 the FED’s monetary base has been increasing exponentially. In fact, many of the world’s central banks have been on the same path: fighting the deflationary secular cycle with a reflationary monetary policy. The ECB’s monetary base recently exceeded, with LTRO 2, even that of the FED.

For the past few years we have been tracking this reflationary cycle in OEW terms. We are expecting five Primary waves up to complete, from the 2008 lows, before this cycle ends. Thus far we have counted Primary waves I and II, at $1.772 tln and $1.554 tln respectively, in 2009. Then Primary wave III started to subdivide, as they often do, into five Major waves. Notice the detail in Major wave 1 into its $2.184 tln high in 2010. QE 1 ended a few months later. Then Major wave 2 bottomed at $1.983 tln in early 2011, as QE 2 started to kick in. Just after QE 2 concluded Major wave 3 topped at $2.725 tln. Then it late 2011 Major wave 4 bottomed at $2.581 tln.

It now appears Major wave 5 is underway as the base has risen to the $2.683 tln level. During this cycle a $100 bln increase, from a low, has indicated a new uptrend is underway. The FED’s Operation Twist, due to end in June 2012, may be doing more than just extending $400 bln of their holdings from short term USG paper to long term MBS paper. Since these uptrends usually last for several months we’re now expecting the monetary base to hit around $3.0 tln in 2012. Primary wave III is likely to conclude at that time. Then the monetary base should decline about $200-$300 bln before Primary wave V, and possibly QE 3, begins. Best to your investing/trading!

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987

About tony caldaro

Investor
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10 Responses to FED’s monetary base update

  1. Pingback: eCoin News » LTRO 3 likely before any U.S. QE3

  2. Pingback: FED’s monetary base … quick update | the ELLIOTT WAVE lives on

  3. Igor says:

    Thank you Tony. Interesting that just over the weekend I’ve read this great article by James Bianco “Living In A QE World”
    http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/

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  4. M1 says:

    Tony, it is very interesting …. The FED supplies the money and the traders make the waves…
    As I mentioned yesterday:
    “However, I see several alt and possible scenarios long term. Check the charts below. I like the one that suggests the market is following the same count than the largest company on the world (aapl). If this is correct 2009 lows may actually had been PIV and not SC2. So the markets should be completing SC1 and Oct lows may had been major 4 and not PII.
    GL

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  5. Bill Albert says:

    Great post Tony. It would be interesting to lay a chart of the S&P 500 over the chart of the monetary base. My guess is that it would show a re-active Fed, rather than a pro-active one. I am still of the belief that the S&P will need to re-test and penetrate 1000 before the central banks of the world expand money supply to the levels you suggest.

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