Duh, Of Course The Rally Is Inflation Driven

What’s odd about market conspiracy theories (plunge protection teams, weird ‘buy programs’ etc.) is that there’s a perfectly sane-sounding explanation that’s no less worrisome: That all the buying is the result of the massive amount of cash that governments have poured onto the market.

The CEO of Knight Trading recently suggested that that’s what was fueling the US equity rally.

And it’s not just stocks, and it’s not just the US.

E.S. Browning’s piece in the WSJ points out that it’s a global phenomenon, touching every market, as governments around the world slash interest rates, boost subsidies and cut taxes:

Silver is up 59% from December lows on futures markets; copper is up 90%; corn, 45%; and crude oil, 113%. Ukraine’s stock market is up 125%, Vietnam’s 116%, Indonesia’s 76% and India’s 87% from winter lows.

In Shanghai, crowds are back on weekends on Guangdong Road, where locals gather to chat stocks. Tan Viet Securities Co. in Hanoi says it is opening or reactivating 50 accounts a day, up from five to seven in March. Optima Securities, a brokerage firm in Indonesia, says the number of new accounts has doubled in the last three months.

The oil-price rebound is boosting costly projects such as western Canada’s oil-sands fields. Imperial Oil Ltd., majority-owned by Exxon Mobil Corp., said May 25 that it is moving ahead with a delayed $8 billion project near Kearl Lake. Canada’s stock index is up 41% since March 9.

Of course, it’s not just the availability of cash coming from all angles. It helps that the economy itself is still in the tank, since it means there aren’t many real-world investments to be made, which would compete for cash with financial instruments.

What’s funny, in a way, is that we can have any debate over inflation at all. Yes, we’re expanding the money supply and stock prices have gone up accordingly. While we don’t fret about the inflating value of financial instruments (since that’s what we want, basically), we might wonder what good it does to increase the price of poker when the underlying quality of the game remains so poor. During the housing boom we employed the same doublethink, ignoring the fact that surging home prices meant inflation.

Included in Browning’s piece is a nice chart, which lays the inflationary strategy out crystal clear.

surging liquidity inflation

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.