Tabell’s Market Letter – March 17, 1972

Tabell’s Market Letter – March 17, 1972

Tabell's Market Letter - March 17, 1972
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TABELLIIS MARKET LETTER J 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGE March 17, 1972 Money, inflation and the stock market constitute a triad of subjects which should be of interest to most investors. We plan, therefore, to devote two letters to these subjects, our concept of their interre- ..lation andthe suggestfo!\s ofthat-interrelatinn -ior-1972-1973 .—- – – – '- Readers of this letter will be aware that it possesses a certain bias toward the monetarist view of economic analysis. It will perhaps be worthwhile to examine some of the assumptions of this view. It is, first of all, based on a truism — the familiar equation, MV PT. This, translated into English, says simply that the money supply (M) times the velocity of money (V) equals total transactions (T) plus the prices (P) at which those transactions take place. Since PT is nothing more than a synonym for Gross National Product and velocity is defined as GNP divided by the money supply, the equation, of course, is true on its face. It has little practical value, however, unless a relationship between money supply and GNP can be established. The key monetarist assumption, of course, is that velocity tends to be relative- ly stable over the short run. If this assumption is true, then changes in M will have a direct and predict- able effect on the economy. The second key monetarist assumption is that the physical capacity of the economy to increase output year by year is limited and relatively fixed. Any attempt, therefore, to increase the money stock by more than that amount will simply be translated into price increase. The following table attempts to show whether the theory has worked in practice over the past 25 years. It shows the annual percentage change In six variables money supply, actual GNP, velocity, real GNP, the stock market (S&P 500) and prices (measured by subtracting real GNP change from actual GNP changEi. PERCENTAGE CHANGE IN Year Money Supply Actual GNP Velocity Real GNP SIXP 500 Prices 1947 3.67 10.94 7.01 -0.86 0.00 11.80 1948 – 1.41 11.37 -q,g49 – 0–27 ,— –04;'l 12.97 4.45 –0'i'l6- – – 1-01-2 – 0.65 ,)0–2-6 6.92 –0.-55,-'—''''' 1950 4.50 11.03 6.26 9.63 21.78 1.41 1951 5.59 15.31 9.20 7.91 16.46 7.40 1952 3.83 5.21 1.33 3.05 11.78 2.16 1953 1.10 5.53 4.38 4.48 -6.62 1.05 1954 2.72 0.05 – 2.59 – 1.41 45.02 1.46 1955 2.19 9.10 6.76 7.62 26.40 1.48 1956 1.26 5.33 4.02 1.85 2.62 3.48 1957 – 0.73 5.30 6.07 1.43 -14.31 3.86 1958 3.83 1.34 -2.40 -1.15 38.06 2.49 1959 0.57 8.14 7.53 6.39 8.48 1.74 1960 – 0.35 4.16 4.52 2.48 – 2.97 1.68 1961 2.83 3.24 0.40 1.95 23.13 1.29 1962 1.38 7.73 6.27 6.56 -11.81 1.17 1963 3.80 5.39 1.53 4.00 18.89 1.39 1964 4.90 7 .10 2.09 5.46 12.97 1.63 1965 4.98 8.30 3.16 6.32 9.06 1.99 1966 1.90 9.49 7.45 6.52 -13.09 2.97 1967 6.76 5.81 -0.88 2.60 20.09 3.22 1968 7.91 8.91 0.93 4.65 7.66 4.26 1969 1970 3.34 5.14 7.51 4.84 4.04 -0.28 2.56 -0.65 -11.36 4.95 -0.10– ,5.49- ' 1971 6.19 7.46 1.20 2.69 11.67 4.77 Average 3.02 6.72 3.63 3.54 8.94 3.18 Cursory examination of the figures bears out, we think, the essential monetarist assumptions. Velocity, while it has more than doubled in 25 years, has had relatively constant yeal'-to-year changes averaging 3.63. Moreover, the monetarist would argue that the advantages of slow steady growth in money supply are manifest as one looks, say, at the period from 1961 thru 1965. This produced, In 196z..l.966, a period of successive above-average changes in real GNP and a period of below-average Inflation with price In- creases of only a bit over 1 per year. By contrast, the past 5 years constitute a monetarist horror story, with four years of supra-normal growth punctuated by the sharp reversal of 1969. The result has been, in the monetarist view, a 1969-1971 period in which real change in GNP has been below average, and the inflation component of that change has been the largest for any period since just after World War 2. The Implications of all this for the economy and, more directly, for the stock market will be discussed in next week's letter. ANTHONY W. TABELL Dow-fones Ind. (1200 p.m) 941.75 DELAFIELD HARVEY TABELL SIXP (1200 P m I 107 81 ', AWTIDUltotement or expreslOn of opinion or any other matter herein contained IS, or IS to be deemed to be, dIrectly or Indirectly, an offer or the soliCitation of an offer to buy or sell any secuflty referred to or mentioned The matter IS presented merely for the conveIence of the subscrober. While we believe the sources of our Informa- lion 10 be reliable, we In no way represenl or guarontee Ihe accuracy Ihereof nor of Ihe statements mude herein Any action to be taken by the subscriber should be based an hIS own Invetlgatlon and information Janney Montgomery Scali, Inc, as a corporollon, and lIS offIcers or employees, may now have, or may later take, POSItions or trodes in respect to ony surrflCS mcntloned In Ih.s or any luture )nut', and svdl posihon may be different from any views now or hereafter expressed In Ihls or any other Issue Janney Montgomery Scali, tnc , whIch IS reglslered With the SEC as on Investment adVisor, may give advloCe to lIS Investment advISOry and othel customers Independently of any statemrnts mode In thiS or In any other Issue Further information on any security menlloned herein IS available on request

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