Which Way Is Up? Part II
We commented last week: "With the dollar caving, asset inflation normally occurs, but foreign investors may back away from dollar denominated equities in favor of bonds to compensate by keeping interest rates low.
In the long run, this could cause a nice market consolidation which will be necessary for any further continuance of this rally."
The Fed raised, then paused and other central banks are raising rates. Real rates (accounting for actual not advertised inflation) are still historically low and monetary policy loose in the extreme.
Since 2001, (and not just for the dollar) global money supply, printing, velocity and lending are at unheard of record levels.
During this same period, the amount of consumer credit, bank credit, loans & leases, commercial & industrial and especially real estate loans has been increasing exponentially.
This has fueled record M&A activity and major stock buybacks which helps continue to artifically support equity prices.
A portion of this excess global liquidity can be gauged by the increase in foreign dollar reserves, which according to Ed Yardeni has increased 19.1% in just this year alone.
As the Fed and other central banks will under no circumstances allow a deflationary spiral to occur, (that is their real fear, not the media advertised "inflation" fear, which runs contrary to the central bankers inflationist policies.)
and they will continue to print money faster than it can be spent or invested...we now believe that this latest phase in dollar debauchery caused a shakeout of the weak or jittery hands amongst foreign investors.
A devalued dollar makes the asset prices seem cheap and foreign investors are again piling back in. With major devaluation on the horizon, todays prices seem like bargains.
As long as the dollar is continually devalued, and it will be, all asset prices will rise in nominal terms. This should keep the equities, commodities, bond, and to a certain extent the housing market afloat for some time to come.
In the long run, this could cause a nice market consolidation which will be necessary for any further continuance of this rally."
The Fed raised, then paused and other central banks are raising rates. Real rates (accounting for actual not advertised inflation) are still historically low and monetary policy loose in the extreme.
Since 2001, (and not just for the dollar) global money supply, printing, velocity and lending are at unheard of record levels.
During this same period, the amount of consumer credit, bank credit, loans & leases, commercial & industrial and especially real estate loans has been increasing exponentially.
This has fueled record M&A activity and major stock buybacks which helps continue to artifically support equity prices.
A portion of this excess global liquidity can be gauged by the increase in foreign dollar reserves, which according to Ed Yardeni has increased 19.1% in just this year alone.
As the Fed and other central banks will under no circumstances allow a deflationary spiral to occur, (that is their real fear, not the media advertised "inflation" fear, which runs contrary to the central bankers inflationist policies.)
and they will continue to print money faster than it can be spent or invested...we now believe that this latest phase in dollar debauchery caused a shakeout of the weak or jittery hands amongst foreign investors.
A devalued dollar makes the asset prices seem cheap and foreign investors are again piling back in. With major devaluation on the horizon, todays prices seem like bargains.
As long as the dollar is continually devalued, and it will be, all asset prices will rise in nominal terms. This should keep the equities, commodities, bond, and to a certain extent the housing market afloat for some time to come.
Comments