In 2013, Wells Capital contrasted the Velocity of Money (M2V) with a variety of indicators. At the time, they pondered if the money velocity would pick up in 2014 and what would be the results. They also commented:
In the current recovery, the velocity of money is not behaving oddly as many believe. Rather, as shown in Exhibit 1, falling velocity characterizing the contemporary recovery has also been commonplace in past recoveries. Moreover, and most importantly, should velocity continue to simulate past recovery cycles, it should soon begin rising. (source:http://www.wellscap.com/docs/emp/20131111.pdf)
We are now approaching the end of the 1st quarter 2015. What has happened to the velocity of money? It has continued its decline. Consider the following chart:
This relationship is worth reviewing regularly. The potential increase in interest rates, the reduction (or continuation) of QE and the impact on the stock market should show up in the above chart. If Wells believed money velocity should soon begin rising, we are that much closer. By the way, note how the M2V is at the lowest point in almost 45 years.
Jim Lindell
Thorsten Consulting Group, Inc.
The views expressed are those of the author at the time of writing and are subject to change. This material has been distributed for educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product. The material is based upon information considered reliable, but its accuracy and completeness cannot be guaranteed.