In my previous post I highlighted an article from MarketWatch that included this conclusion:
... changes in M1, M2 and M3 are "next to useless" as [stock] market timing indicators.
Spencer England (of Spencer England's Equity Review) says not so fast, and sends me this graph of the S&P price-to-earnings ratio and the growth rate of real money balances measured, by Zero Maturity Money (MZM):
OK -- I'm impressed, but I'm not sure what to make of it. The savvy folk rush to liquidity when the P/E ratio moves north? Spurious correlation (because both series are positively related to the overall level of economic activity)? Any suggestions?