S&P500 Normalized with M2

[arcticbull]

Why on earth would you divide the market cap of the 500 largest companies in the US by the money supply? It's a completely arbitrary and silly thing to do. Why not divide the number of cheese wheels by the diameter of the moon?

This chart isn't mind-blowing, it's straight-up meaningless.

[edit] Also note the S&P 500 isn't even a consistent numerator, it's an index whose constituent companies are replaced over time at the whim of a committee, lol. Remember when Tesla got added in 2020, and the Apartment Investment and Management Co. got removed? - and as a peer comment pointed out, this doesn't even include dividends and distributions.

[jrflowers]

Surely this post about “money printing rulers” posted by “tsartoshi” couldn’t be anything short of groundbreaking mathematical journalism

[jy1]

A common narrative lately is that a lot of stock prices are highly correlated with money supply. E.g. The only reason 2021 bubble happened is because the FED printed trillions of dollars.

I wouldn't say its completely arbitrary given this has been a common discussion point.

No opinions on whether it has meaning, but wanted to add the relevance.

[cconroy]

Just to be clear, do you believe there is a connection between money printing and decreased purchasing power?

[etskinner]

They should really be comparing to the total stock market, of course. Using something like DWCF or VTSAX

[rafaelero]

Why not? In the long run M2 is basically the same as inflation.

[bryanlarsen]

This is good news. It means the Fed is doing its job. M2 is a measure of the amount of money in the economy, not a measure of inflation.

If the economy grows, the amount of money needed to lubricate the economy also grows. If the money supply doesn't grow while the economy does then we'd see significant deflation.

So we want these two measures to be relatively balanced, and they are. Yay!

[VHRanger]

It might surprise no one here that people who are professionals in the finance industry are capable of adjusting for inflation:

https://www.multpl.com/inflation-adjusted-s-p-500

You can also note that M2 is correlated basically with inflation in the long run (Rsquared ~0.92)

The error on the part of the twitter user is that he's using nominal values instead of % growth (log-log) values. Something you learn in 101 econometrics.

This is why you don't listen to crypto bros on matters of monetary economics.

[etskinner]

It would be more helpful to compare S&P 500 vs CPI rather than M2. It's purchasing power that matters to most investors, not the comparison to how much money exists.

S&P 500 gained ~40% since January 2020, and CPI gained ~18%.

Even better would be comparing to the total stock market rather than S&P 500. Using something like DWCF or VTSAX

[SantalBlush]

Right, this chart is the epitome of misleading statistics. It was made by someone who doesn't understand what they're talking about, and its intended audience is people who don't understand what they're reading.

[qez2]

The post seems to be implying that increase in money supply is synonymous with inflation, but one of the main reasons we print more money is actually to keep up with growth.

[throw9away6]

The cpi is a bad metric. It does not accurately capture all the cost increases we have seen since covid.

[jy1]

It's up substantially when calculating total return (including dividends) https://twitter.com/Tsartoshi/status/1680139560074764288?s=2...

[swyx]

careful with crypto guys and inflation truthers - they cant articulate the velocity theory of money, but are very confident that they know better than the fed (usually spelled FED as a shibboleth) on what money is

[fxtentacle]

"All the technological advantages humans made"

I didn't notice them. Is there anyone who believes Google or Microsoft are now significantly more useful than in 2003? Does anyone feel like Facebook has gotten more useful in recent years? Apart from compensating for ever slower Electron apps, does the additional CPU power in modern Macs really improve my life? How come VS Code still feels so much slower than Visual Studio 6 on Windows 98 SE?

Maybe it's time to accept the obvious conclusion that new != better when it comes to technology.

[xnx]

Talking about M2 without context or regard for other factors is such a reliable indicator that I don't need to read any further.

[mouzogu]

the cost of everything has gone up bigly while my salary has remained stagnant

dont need any financial astrology or jargon to know this

[xattt]

I’m trying to click the X to close the window but won’t do anything.

[the-dude]

Try Alt-F4