20 October 2013
The 2013 Nobel Prize for Economics has been awarded to Eugene Fama, Lars Hansen and Robert Shiller for laying "the foundation for the current understanding of asset prices".
On a lark I have drawn graphs showing the relation between Corrected Money Supply (for the benefit of those who haven't read my book it is Seasonally Adjusted M1 plus Sweeps minus Seasonally Adjusted Personal Savings) and the S&P 500 for 1961-70, 1971-80, 1981-90, 1991-2000 and 2001-August 2013 (the latest month for which data are available). The amazing correlation surprised even me. There are periods e.g. 2001 and 2002 when Corrected Money Supply rises but the S&P falls. But as the last graph shows that was the period during which the Case Shiller 20 City Home Price Index kept rising. Conversely, this index fell from 2010 to 2012 when the S&P kept rising in tune with increasing money.
Readers may notice that the Corrected Money Supply graphs differ from those in the past. That is because the Fed has reworked a lot of data series right back to 1929.