How Global Financial Markets Performed in 2011

2011 has mostly been a mixed bag for the various asset markets.

From Marketwatch.com

Dow Industrial Average DJIA up 5.5%

S&P 500 Index SPX unchanged

Nasdaq Composite COMP down 1.8%

Gold futures GC2G up 10%

Silver futures SI2H down 9.8%

Copper futures HG2H down 23%

Crude oil futures CL2G up 8.2%

Natural gas futures NG12G down 32%

Gasoline futures RB2G up 11%

Heating oil futures HO2G up 16%

U.S. dollar index DXY up 1.3%

iShares MSCI Emerging Markets index fund EEM down 20%

Financial Select Sector SPDR Fund XLF down 18.5%

NYSE Arca Oil Index XX:XOI up 1.3%

NYSE Arca Natural Gas Index XX:XNG up 5.1%

The above suggests that 2011 had mostly been negative for the global equity markets and a mixed showing for commodities; lower metal prices (except for gold) and higher energy prices.

Although in spite of several major event risks which has contributed to this year’s heightened market volatilities, particularly the Arab Spring, Japan’s triple calamity, and most importantly, the continuing European debt and financial crisis, ASEAN markets has performed scintillatingly beyond expectations for 2011: Philippine Phisix up 4.07%, Indonesia’s JCE 3.2%, Malaysia’s KLSE .8% and Thailand’s SET down marginally by .72%.

Yet the mixed showing of global financial markets for 2011 appear to be symptomatic of a transitioning STAGFLATION economic environment.

Contracting Money Supply, Deflation Bugaboo And Dubious Statistical Models

In a recent article UK Telegraph's Ambrose Evans Pritchard cites the risks from contracting money supply to the economy and quotes an expert for reference to amplify these on concerns,

``"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said."

Of course these experts have long used contracting money supply to argue for a deflation scare, in order to justify more inflation or money printing as a cure.

Here is a relevant chart of different money supplies from John Williams' Shadow Government Statistics

And compare them to the movements of asset markets below...
If you look at the money supply chart, although mostly positive, the monthly rate of changes have been on a decline since 2008 (except for M3-now negative)! So given the trend of declining money supply, theory goes that markets ought to be collapsing (!) or at the very least we won't be seeing any material rallies in the markets!!

The chart above shows of the 2 year trends of the global stock market index (DJW), the commodities index (CCI), an index of US government securities (USGAX) and an emerging market debt fund (XESDX).

Despite the falling rate of money supplies, all of these asset classes, which competes for everyone's money, have been on the rise in spite of the recent volatility--a scenario in stark contrast to what's being painted.

This only goes to show that there must be some major loopholes or that global dynamics must have changed alot for these statistics not to capture the developments in the asset markets.

Yet the mainstream has been using the same models to anchor their bugaboos and argue for more zombie-fication of the markets.

We earlier dealt with the lack of reliability of models in Beware Of Economists Bearing Predictions From Models, and this seems like a good example.