The Tidal Wave of Money Coming — Money Supply and Asset Inflation

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Central Bank Money Supply and Asset Inflation

Goodness gracious me. The ridiculous free pass corporate Australia can get from the mainstream press is something to behold.

One writer in The Australian describes CEO Matt Comyn as ‘Magic Matt’ because the CBA result came in with a decent set of numbers under the circumstances.

Hello — you and I could produce magic with a direct phone line to the RBA and the prime minister. Magic Matt should come out and give credit where it belongs — the Australian taxpayer.

I doubt he’s too keen to mention the national deficits we are now saddled with to prop his asset base. ‘Magic’? Humbug!

But one thing can’t be denied. I thought the banks would be the weak link in the ASX. The market is now signalling this line of thinking is wrong. The banks are holding ground.

Conclusion: This bull run may yet have legs. Or, at the very least, the big bear is held at bay.

Since the collapse in March I have been wary of a second leg down. It was the standard response.

Like all times in the market, doing the standard thing is usually the wrong thing. And so it has proved. The market has run up.

I have still recommended trades to my subscribers — a couple of darn good ones too. But I could have been more aggressive on some others.

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Opportunity with Cautious Optimism

How easy it all seems in hindsight! But we can only move forward. My suggestion? If opportunity presents, go with it with risk management in place.

I know. I know. The economy is going through the grinder and then some. But it’s foolish to equate the stock market as somehow connecting directly to the general economy.

Firstly, the market is always looking ahead. The second is that the stock market absorbs the liquidity from the central banks. Asset inflation it’s called!

The only question is how long before this liquidity DOES start to leak into the general economy.

It can’t be too far away. Some of my colleagues believe that a lack of ‘velocity’ — the speed at which money changes hands — will prevent this inflation from happening.

The standard measure of velocity shows it going down and unstable since the 1980s.

I don’t agree with this assessment. A man much smarter than me called Richard Werner is the one to see on this.

You see…the concept of velocity stems from something called the Quantity Theory of Money. This goes back at least a century.

However, the assumption under this equation assumes that all money is used for GDP transactions. You know…buying socks and selling software and hiring tradesman and all the things that we do in a market economy.

Alas! Such a condition does not hold. Most money sloshing around the world is used to buy and sell assets.

You know…houses, bonds and stocks. These transactions are not part of GDP…and therefore money supply figures go up but velocity appears to go down.

Thus…investors can be led into thinking that the money creation happening now won’t move the markets a la Japan over the last 20 years.

Therefore, right now, every investor faces a choice…deflation or inflation. I’ve made mine…inflation!

The stock markets around the world are signalling this. So is gold.

Yes, the yellow metal has had a pullback in the last few sessions. But really…it’s still $2,600 an ounce here in Australia…that’s more than enough to make gold miners very profitable.

It will be most interesting to see if that gets a further boost from the collapse in the oil price, which helps with their costs as well.

Do make sure you get on board with my colleague Shae Russell over at Rock Stock Insider.

The tidal wave of liquidity is coming to send stocks, gold, property and bitcoin soaring as the world inflates with fiat currency.

Velocity could skyrocket right alongside of it!

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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