Money & Velocity

F I N T R U S T
BROKERAGE SERVICES LLC
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Money & Velocity
A White Paper by: Allen Gillespie, CFA

August 20, 2013
Inside
Index Levels
F I N T R U S T
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Contact:
Barry Eisen
BEisen@fintrustadvisors.com
Charles Sisk
CSisk@fintrustadvisors.com
435-640-2370
Our mission is to produce original, unbiased, thought-provoking
observations that will unlock the message of the markets. Our view is
neither bullish nor bearish, our goal is to uncover potential ideas and
opportunities for our clients.

F I N T R U S T
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The Federal Reserve purchases are intended to drive the amount of money to all-time highs.
What are the banks doing with the cash they are receiving from the selling of assets to the Federal
Reserve? Well, they are not loaning it because that would require risk and work in an entitlement
society.

F I N T R U S T
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So, the cash is piling up at the Federal Reserve as Excess Reserves.
Why are banks just hoarding this money at the Federal Reserve? Well, because a lot of banks made
bad loans, so people and businesses defaulted, impairing their own credit and bank balance sheets.
As a result of that, many businesses today no longer are demanding credit due their near death
experience during the recession.

F I N T R U S T
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And because this money is sitting, the velocity of money has crashed to 50 year lows.

August 20, 2013
Inside
Index Levels
F I N T R U S T
7
Contact:
Barry Eisen
Charles Sisk
435-640-2370

August 20, 2013
Inside
Index Levels
F I N T R U S T
8
Contact:
Barry Eisen
Charles Sisk
435-640-2370

F I N T R U S T
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Technical Risk to the Transition
The technical risk to the transition to higher interest rate levels can be seen in the last four cycles
where interest rates rose significantly. The last interest rate cycle caused the real estate crash. The
cycle before that caused the crash in the dot.com bubble. During the 1994 rise in interest
rates, Orange County California imploded, but equities were a sideways affair, and the cycle before
that was the 1987 stock market crash. Given the low level of interest rates and the unusual nature
of the current environment, we believe there is both the opportunity for a mild 1994 transition and
the risk of a 1987 transition, should interest rates follow the traditional pattern of two legs higher.
Inflation is a late cycle phenomenon, so where are we in the cycle. The National Bureau of
Economic Research dates the peak of the last expansion at December 2007. The average peak to
peak is 68.5 months, so cycle theorist will look for an economic peak this August/September when
Congress debates the debt ceiling. The trough to peak measures of expansions average 58.4 and the
last low was record in June 2009, which points to April 2014.
Velocity
Gold rallied from a 2009 low of $733 to a high of $1944 or 2.65x and that proved too much. Stocks
began their bull market at a low of 666, so an equivalent move equals $1766.
Things are calm. The calmest of my career. It makes me think of the saying, “they don’t ring bells
at the top.”
The signs are that the economy is picking up, but velocity may counter intuitively not be such a
good thing in a world full of money.
Allen R. Gillespie, CFA is a partner with FinTrust Investment Advisors, in its Greenville, SC office.
For more information, call 864-288-2849 or e-mail agillespie@fintrustadvisors.com.

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Disclaimer
DO NOT DISTRIBUTE. This material is intended for the recipient only. Distribution to unauthorized
persons may violate applicable securities laws and regulations. This material was prepared by FinTrust
Brokerage Services, LLC (“FinTrust”) and is excluded from the definition of “research report” found in NASD
Rule 2711. This material does not constitute research and is not intended to form the basis for any investment
decision. The data and information contained herein was obtained from sources considered to be reliable, but
FinTrust does not guarantee its accuracy and/or completeness. Neither the information nor any opinions
expressed constitute a solicitation for the purchase or sale of any security referred to herein. FinTrust and its
associated persons and affiliates do not accept any liability whatsoever for any direct, indirect, or
consequential loss arising from any use of this material. FinTrust and/or its officers, directors, and employees
(including, without limitation, persons involved in the preparation of this material) may from time to time have
long or short positions in, and buy or sell, the securities mentioned herein and/or derivatives (including options)
and other instruments related thereto. FinTrust Brokerage Services, LLC is a member of FINRA and SIPC.

F I N T R U S T
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F I N T R U S T
For More Information Contact Charles Sisk:
Phone: 435.640.2370
Email: csisk@fintrustadvisors.com

Money & Velocity

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