MONEY FLOW

Definition of 'Money Flow'

Calculated by averaging the high, low, and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells you whether money flow was positive or negative for the current day.

Investopedia explains 'Money Flow'

When a stock is purchased at a higher price (an uptick), this is considered positive money flow. When the next trade is at a lower price (a downtick), this is considered to be negative money flow.
If more shares were bought throughout the day on the uptick than the downtick, net money flow is positive because more investors were willing to pay a premium for the stock. If money flow is negative when a stock's price is rising, this could spell trouble.

Hot money 

is a term that is most commonly used in financial markets to refer to the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called "hot money" because they can move very quickly in and out of markets, potentially leading to market instability.| HERE

A stabilization policy 

is a package or set of measures introduced to stabilize a financial system or economy. The term can refer to policies in two distinct sets of circumstances: business cycle stabilization and crisis stabilization. HERE

Money flow index (MFI) 

is an oscillator calculated over an N-day period, ranging from 0 to 100, showing money flow on up days as a p

ercentage of the total of up and down days. Money flow in technical analysis is typical price multiplied by volume, a kind of approximation to the dollar value of a day's trading.

The calculations are as follows. The typical price for each day is the average of high, low and close,

 

Money flow is the product of typical price and the volume on that day.

 

Totals of the money flow amounts over the given N days are then formed. Positive money flow is the total for those days where the typical price is higher than the previous day's typical price, and negative money flow where below. (If typical price is unchanged then that day is discarded.) A money ratio is then formed

 

From which a money flow index ranging from 0 to 100 is formed,

 

This can be expressed equivalently as follows. This form makes it clearer how the MFI is a percentage,

 

MFI is used as an oscillator. A value of 80 is generally considered overbought, or a value of 20 oversold. Divergences between MFI and price action are also considered significant, for instance if price makes a new rally high but the MFI high is less than its previous high then that may indicate a weak advance, likely to reverse. 

It will be noted the MFI is constructed in a similar fashion to the relative strength index. Both look at up days against total up plus down days, but the scale, i.e. what is accumulated on those days, is volume (or dollar volume approximation rather) for the MFI, as opposed to price change amounts for the RSI. 

It's important to be clear about what "money flow" means. It refers to dollar volume, i.e. the total value of shares traded. Sometimes finance commentators speak of money "flowing into" a stock, but that expression only refers to the enthusiasm of buyers (obviously there's never any net money in or out, because for every buyer there's a seller of the same amount). 

For the purposes of the MFI, "money flow", i.e. dollar volume, on an up day is taken to represent the enthusiasm of buyers, and on a down day to represent the enthusiasm of sellers. An excessive proportion in one direction or the other is interpreted as an extreme, likely to result in a price reversal. 

Similar indicators
Other price × volume indicators:

• On-balance volume
• Price and volume trend
• Accumulation/distribution index

Capital controls 

are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measures may be economy-wide, sector-specific (usually the financial sector), or industry specific (for example, “strategic” industries). They may apply to all flows, or may differentiate by type or duration of the flow (debt, equity, direct investment; short-term vs. medium- and long-term).

Types of capital control include exchange controls that prevent or limit the buying and selling of a national currency at the market rate, caps on the allowed volume for the international sale or purchase of various financial assets, transaction taxes such as the proposedTobin tax, minimum stay requirements, requirements for mandatory approval, or even limits on the amount of money a private citizen is allowed to remove from the country. There have been several shifts of opinion on whether capital controls are beneficial and in what circumstances they should be used.

Capital controls were an integral part of the Bretton Woods system which emerged after World War II and lasted until the early 1970s. This period was the first time capital controls had been endorsed by mainstream economics. In the 1970s free market economists became increasingly successful in persuading their colleagues that capital controls were in the main harmful. The US, other western governments, and the international financial institutions (the International Monetary Fund (IMF) and World Bank) began to take an increasingly critical view of capital controls and persuaded many countries to abandon them to reap the benefits of financialglobalization.

The Latin American debt crisis of the early 1980s, the East Asian Financial Crisis of the late 1990s, the Russian Ruble crisis of 1998-99, and the Global Financial Crisis of 2008, however, highlighted the risks associated with the volatility of capital flows, and led many countries—even those with relatively open capital accounts—to make use of capital controls alongside macroeconomic and prudential policies as means to damp the effects of volatile flows on their economies.

In the aftermath of the Global Financial Crisis, as capital inflows surged to emerging market economies, a group of economists at the IMF outlined the elements of a policy toolkit to manage the macroeconomic and financial-stability risks associated with capital flow volatility, and the role of capital controls within that toolkit. The study, as well as a successor study focusing on financial-stability concerns stemming from capital flow volatility, while not representing an IMF official view, were nevertheless influential in generating debate among policy makers and the international community, and ultimately in bringing about a shift in the institutional position of the IMF.  With the increased use of capital controls in recent years, the IMF has moved to destigmatize the use of capital controls alongside macroeconomic and prudential policies to deal with capital flow volatility. More widespread use of the capital controls instrument, however, raises a host of multilateral coordination issues, as enunciated for example by the G-20, echoing the concerns voiced by Keynes and White more than six decades ago.

International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.

International trade studies goods-and-services flows across international boundaries from supply-and-demand factors, economic integration, international factor movements, and policy variables such as tariff rates and trade quotas.

International finance studies the flow of capital across international financial markets, and the effects of these movements on exchange rates.

International monetary economics and macroeconomics studies money and macro flows across countries.

International political economy from international relations studies issues and impacts from for example international conflicts, international negotiations, andinternational sanctions; national security and economic nationalism; and international agreements and observance

Money Supply 

In economics, the money supply or money stock, is the total amount of monetary assetsavailable in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions). 

Money supply data are recorded and published, usually by the government or the central bank of the country. Public and private sector analysts have long monitored changes in money supply because of its effects on the price level, inflation, the exchange rate and the business cycle. 

That relation between money and prices is historically associated with the quantity theory of money. There is strong empirical evidence of a direct relation between money-supply growth and long-term price inflation, at least for rapid increases in the amount of money in the economy. That is, a country such as Zimbabwe which saw rapid increases in its money supply also saw rapid increases in prices (hyperinflation). This is one reason for the reliance on monetary policy as a means of controlling inflation. 

The nature of this causal chain is the subject of contention. Some heterodox economists argue that the money supply is endogenous (determined by the workings of the economy, not by the central bank) and that the sources of inflation must be found in the distributional structure of the economy. 

In addition, those economists seeing the central bank's control over the money supply as feeble say that there are two weak links between the growth of the money supply and the inflation rate. 

First, in the aftermath of a recession, when many resources are underutilized, an increase in the money supply can cause a sustained increase in real production instead of inflation. Second, if the velocity of money, i.e., the ratio between nominal GDP and money supply, changes, an increase in the money supply could have either no effect, an exaggerated effect, or an unpredictable effect on the growth of nominal GDP. HERE

Friday, May 3, 2013

International Money Flow Is Tightening

Kevin Brekke

Casey Research

The EU continues its chainsaw juggling act. The austerity pledge from France is holding about as well as its Maginot Line, while Greece has sworn to meet its fiscal targets in 2014 2015 2016soon, and the Italians promise they're going to kick some serious fiscal butt as soon as the country returns from holiday.

Spain reassures that it will squarely confront its need to raise worker productivity whenever the unions call an end to protests against austerity. And the Portuguese high court ruled it is unconstitutional for civil servants to work for less than twice the wages of their private-sector counterparts.

This chronic "the sky is falling" in the EU had induced investor news-cycle fatigue and rendered last year's black-swan threat level from red to this year's collective yawn…

… until Cyprus tossed another chainsaw into the act. The Cyprus looting of private wealth was a cold-shower reminder of the tenuous security of assets that are concentrated within reach of a single government – doubly true of nations in a desperate fiscal situation whose financial sector is about to topple. 

Depositor Creditor

The blatant theft of depositor money in Cypriot banks was at first peddled as a one-off emergency measure. Then a Freudian slip by the head of the Eurogroup finance ministers, Mr. Dijsselbloem, suggested this would be the new pattern for similar future events. Much back-pedaling and "clarification" ensued.

But don't bother squinting as you try to read the lips of mumbling bureaucrats. Just follow what they're doing and you won't get blindsided.

What have they been up to? In October 2011, the Financial Stability Board (FSB) – a tentacle of the Bank for International Settlements, the central bank for central bankers – released a report that proposed a new regime to resolve financial-institution instability.

In the report, the FSB calls for solvency support for banks without taxpayer exposure and the allocation of losses to shareholders and unsecured and uninsured creditors. Deposits at a bank are considered a loan, and if a bank fails, its depositors become unsecured creditors for amounts that exceed the insurable limit.

It gets worse. To protect the integrity of the financial system, controls on both endogenous (the bank itself) and exogenous (other firms and cross-border cooperation) capital movement can be implemented. This is exactly what happened in Cyprus. To prevent capital flight out of the banking system, the movement of money out of or between banks was restricted, as well as capital sent outside the country.

The G20 has fully endorsed the plan, and its implementation is complete or under way in member jurisdictions. The US is a G20 member, so don't kid yourself into believing it can't happen in America. It can and will. The Cyprus event has been carefully framed as an anomaly when in fact it is part of a well-orchestrated script.

In the Year of Our Overlord 1 AF

January 1, 2014, will mark the start of Year 1 AF – "after FATCA." In the run-up to the US reporting regime's full implementation, many foreign banks have opted not to accept US persons as clients, and we can see why. FATCA is a huge burden on foreign financial institutions in terms of time and resources needed to identify, track, and report on their US clients.

Today, it is nearly impossible to find a foreign bank that will open an account for an American without them visiting the bank and delivering a stack of notarized paperwork to prove they are who they say they are. Other banks that had welcomed US persons have suspended doing so in anticipation that further demands on their time will be announced.

In fact, one bank we spoke with during our research on internationalization has done just that. Lloyds TSB has stopped opening accounts for Americans, pending a review of FATCA later this year. Our contact at the bank did not sound optimistic that the policy would be reversed. This is a trend we expect will gain traction.

And as if Americans seeking to internationalize weren't already facing stiff headwinds, a recent leak of internal documents linked to offshore entities will likely add some force. In early April, millions of emails and other records were leaked with information on thousands of account and company owners in the British Virgin Islands, a popular offshore banking center. The leak exposed several high-profile clients that are allegedly "hiding" assets from their home tax authorities.

This is just the kind of news that will embolden the offshore-means-tax-evasion governmenteers to twist the reporting screws a little bit tighter.

When Is Now

The incremental creep of crises continues to aggravate the financial landscape and provokes increasingly desperate responses from Western governments, particularly the US.

Yet in spite of all the words unleashed and regulations imposed against offshore investing, it remains unquestionably legal. How long it will continue to be legal is questionable.

Is it easy? No. But neither is getting your luggage and shoes through airport security. The situation for the easy movement of capital and assets across borders is dire, but it is not hopeless if you have the right information.

FATCA has effectively acted as stealth capital controls, as the regulations dissuade foreign financial institutions from doing business with Americans, discouraging all but the most persistent investors from pursuing an international wealth preservation strategy.

As the pieces come together, a clear picture emerges: Americans are just one financial crisis away from triggering the provisions of the G20-backed FSB financial resolution regime. And that almost certainly will include restrictions on the movement of capital. Once your money is trapped inside the US, any type of concocted emergency "tax" can be imposed on your wealth.

Additional taxes are just one of many steps your home government can take to grab a share of your hard-earned wealth. Wise investors disperse their assets internationally to minimize this risk, and though it's getting late in the game, there's still time for you to join them.

You can learn about moving your cash offshore... setting up an offshore LLC... investing in international stock markets... and internationalizing yourself, including getting a second passport. It's all available in an information-packed special report titled Going Global 2013. You won't find a better resource for internationalizing your life and your assets. Get started today.

Share on Google Plus

About octadandy