Why with the money supply surging month after month, business doesn't surge along with the money supply. It has to do with the velocity of money. It's not only the money mass that's important, it's how fast that money is being used that's critical. It's how fast that money is turned over that's important.
If I take a .45 cartridge and throw it at you, it's probably not going to do any real damage. There's no real force behind the bullet. But if I take that same cartridge and put it in a Colt .45 auto and fire it at you, it's going to do a lot of damage. The difference is velocity. It's the same thing with the money supply.
Regarding the stock market, the market's been rising ever since the October 9 low. But we have yet to see a really impressive single day on the upside. How can the market continue to rise without generating at least a few powerful upside days?
Lowry's statistics. Lowry's Selling Pressure (supply) has now dropped to its lowest level since its October 9 low. At the same time, the Buying Power (demand) has moved up rather sluggishly. What's been happening is that this market has been rising mostly on the basis of sellers backing off. It's as if the market has "floated" up as buyers have hit the asking prices. Based on volume indications, institutions have been sitting on the sidelines.
It's a case of the sellers becoming less willing to sell, while the buyers, although not terribly enthusiastic, have nevertheless, continued to buy.
Actually, there have been a number of "distribution days," in which the institutions were sellers. These are days when the market declines on increasing volume (volume increasing compared to volume on the preceding day). But even the distribution days were half-hearted. So far there have been no declining days on BIG volume.
So basically the money supply story is -- copious money supply but nobody's using the money -- this generates low velocity in money, low turnover.
The stock market story is -- a sharp pull-back by sellers accompanied by continuing low-key buying. That's been enough to push stocks higher, but I wonder how long this type of rally can last.
The newspapers are noting with excitement that this October is the best single month for the market since 1987. The Dow will be up 11% this month. But The market had been declining for six consecutive months, so a big bounce on the upside should not be surprising.
