Money (volume) is not everything (for evaluation)

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Soft ADP pay data and Mizuki GogiSM service report released yesterday have significantly reduced its 10-year yield. Is slowing down imminent? President Donald Trump seems to be suspicious. He updated Federal Reserve Chairman Jay’s “too late” Powell’s call to cut interest rates. The interest in monthly work counts on Fridays is high. Email: Unedged@ft.com.

Money Supply

There has always been a voice minority in the financial markets that argued that the key determinant of asset prices is the amount that runs around. We can see why these “valuation monetarists” (the term we invented) might think like they are. This is a chart of the annual changes in broad money (M2) plotted against annual changes in S&P 500 levels. We’ve expanded the changes to the Money Series to show you how to track stock prices over many periods.

There are many qualifications here. Apart from simple causality, there are many possible explanations for this pattern. The definition of money or liquidity you use is very important, and there are many things that standard national measures, such as M2, are overlooked, especially given the multinationality of the financial system. And not only the volume, but the speed of money is important. Still, there is a grip in the intuition of monetarists. Push money into the financial system and the prices of financial assets rise. Suck it out and they’ll descend. Unhedged doesn’t have a strict view of the house, but I think some versions of the reviews apply to them at least for some time.

Therefore, we thought it would be useful to outline an overview of where the money supply is currently located. This focuses on the M2, including hand cash, check/savings account money, and other short-term savings vehicles such as money market funds and CDs. After a rapid rise between 2020 and 2022, when the Fed implemented quantitative easing, M2 fell in 2022 and early 2023, but recovered sharply. Does it support asset prices or will it push them into bubble territory?

Think about the reason why the money supply fell before rising. From 2022 to 2023, high interest rates curbed bank lending (which generates money). At the same time, the Fed was engaged in QT. This can reduce the level of bank reserves held by the Fed, at least in the early stages, and also curb loans. However, in the second half of 2023 and 2024, loans expanded as the economy recovered, and they have been solid ever since. Surprisingly, perhaps even spiked sharply in April, when the market panicked over Trump’s tariffs. Joseph Wang of Monetary Macro suggests that this may be because “the disruption in the capital market in April switched funds to commercial banks for borrowers.” The same thing happened during the pandemic.

The increase in money supply driven by a robust economy and renewed bank lending doesn’t look like a machine blowing a bubble of assets. And in fact, when you look at M2 compared to GDP, it’s now almost back to pre-pandemic levels. Even these levels are too high and can be argued as a product of extraordinary monetary policy after the financial crisis. However, the money supply has returned to normal levels without permanent damage to the stock valuation.

The Fed and government were able to goose money supply with financial, financial and banking policies. But for now, resilient stock markets are clearly not a financial phenomenon.

Online sports bet

Last Friday, Illinois legislators addressed a new tax on the online sports betting app on the state’s budget bill. Add 25 cents per bet on the first 20mn online bets filmed on each platform, plus an additional 50 cents. This is on top of taxes on total game revenue (all money was wagered from the Betters’ prize), a traditional form of casino taxation.

Shares in two biggest public sports betting apps, DraftKings and Flutter (owned by Fanduel), fell 8% and 3%, respectively.

If you feel that the betting app or app investors have been chosen by the tax authorities, Unhedged has this advice. Online sports betting is a young industry and it’s unlucky to grow in moments of tension in state and federal level budgets. According to the American Gaming Association, total gaming revenue for the US sports betting industry totaled $13.7 billion in 2024, up 25% year-on-year. City estimated that if new Illinois taxes had been in place for the last 12 months, Draft King alone would have provided Illinois with $688 million in revenue. The ultimate equilibrium suspect is that the app is taxed at a level that maximizes tax revenue, leaving enough profits for the app to acquire an average return on capital. The government needs money, and the app is soft target (and unlike casinos, the app cannot sell hotel rooms, flashy meals, or tickets).

DraftKings and Fanduel will likely try to mitigate the Illinois tax impact through reduced promotions or higher play fees by handing them to consumers. For these companies, the top 1% of users (heavy betters and sharks) generates around 25-50% of APP revenue. However, these customers are more profit-sensitive and could move to a lower-cost platform. Customers with reliable margins would be better off casual for a little fun. According to the vendor, these customers are:

More entertainment value. . . Sit on NFL Sunday, have $20 and put it in some games. It keeps you engaged. You support things that may not be. So, consumers, the average consumer, are probably always there.

The online sports gaming industry can be a competition to attract rollers, ironically.

(Kim)

One good read

Connecticut Yankee in President Trump’s court.

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