Why assets will increase in value...and more inflation data

A rising tide lifts all boats.

It is really as simple as that. See, monetary stimulus is intended to find its way into risk assets. Central Banks can be more or less subtle in what they decide to buy directly however the real ultimate goal is to stimulate the economy and inflate asset prices. As an example, the Bank of Japan has been buying ETFs since 2013, the FED doesn't yet however I suspect it will start a few years from now. Why? Because monetary stimulus has its limits and they will be forced to "do more".

Here is the official FED mandate:

Our two goals of price stability and maximum sustainable employment are known collectively as the "dual mandate."

Price stability

The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the Price Index for Personal Consumption Expenditures (PCE), is most consistent over the longer run with the Federal Reserve's statutory mandate. The Committee has also explicitly noted that the inflation target is symmetric and stated that it "would be concerned if inflation were running persistently above or below this objective."

Maximum sustainable employment

Many nonmonetary factors affect the structure and dynamics of the labor market, and these may change over time and may not be measurable directly. Accordingly, specifying an explicit goal for employment is not appropriate. Instead, the Committee’s decisions must be informed by a wide range of labor market indicators.

Information about FOMC participants' estimates of the longer-run normal rate of unemployment consistent with the employment mandate can be found in the Summary of Economic Projections (SEP). Most recently, the median Committee participant estimated this rate to be 4.1 percent.

Now, the above mandate is noble in scope however the way they are trying to achieve it is irresponsible and dangerous at best.

23.6% of all US dollars were created in 2020

Stop for a second and think about it. The US $ has been around for 200 years and a quarter of it has been created in only the last 12 months.

The result of this experiment is very simple: inflation and steep increase in asset prices.

If you only have your employment income, then it's very bad news for you as inflation will eat quickly in your purchasing power. If you own the right assets however you can somewhat protect your savings. If you invest in the very best inflation hedges, you might even come ahead in a few years.

In a way the counter argument to infinite money printing is that it was the only way to stop a cascading problem which was exacerbated by the Covid-19 pandemic. That problem was liquidity and the collapse of economic activity. The REPO market was signaling issues long before Covid-19 was even known!

Since the FED and the US government enacted their emergency measures, asset prices have skyrocketed (excess liquidity needs to find a home) however Main Street recovery has stayed muted at best. The divide between Wall St and Main St however has never been bigger. Inequality is at levels not seen for centuries.

I will leave you with one image: