I didn't think it was possible, but I returned from my New York trip even more bullish. I hosted a breakfast with long short managers, a dinner with a younger group of CIOs and portfolio managers, and met one on one with various investors. 

The macro conversation hovered around rates volatility which remains elevated, the contraction in money supply as measured by M2, and the senior loan officer survey. The undertone was decidedly bearish. 

M2 contracted on a year over year basis for the first time in December. And now we've seen contraction continue for five straight months. 

The popular macro view since the Great Recession has been that this has been a liquidity driven rally—a result of central bank balance sheet expansion. And now with balance sheets shrinking, the contraction in money supply, and the coming increase in the treasury general account, only bad things can happen.

I never liked the chart that showed the S&P 500 going up into the right just the same as the central bank balance sheets. A more relevant chart is to plot the S&P 500 with earnings, which shows the same picture and is a much better explanatory variable. 

In fact, the statistical links between measures of the money supply and other key macroeconomic variables like growth and inflation have weakened since the late 1980s. We shouldn't be surprised to see M2 and GDP growing in different directions much of the time. 

It’s important to remember that even with money supply contracting, there’s still a whole lot of cash sitting around in America’s financial system. At nearly $21 trillion, M2 is