Short analysis on importance of ample liquidity; Series on Equities and the 2020 Outlook: Part (3/4)- 28th Dec 19'
1. Naturally, there's a constant growth in money supply. Part of it ends up as investments in stocks. Hence, it is useful to look at the ratio between money supply and the returns on the market to assess the relative value of the market. This principle becomes especially important at the end of cycles, especially in a cycle that's driven by momentum. Comparatively, stocks aren't as overvalued as they were during the dot.com bubble, but at the same time the monetary base(purple line) has quadrupled.
In my last post I discussed the repo market and the balance sheet expansion.
2. Discussing the chart and starting with the cycle line at the bottom of the chart. It seems that, the market resets every 2.5 - 3 years. In some ways, these intervals are influenced by liquidity crunches, and can be named liquidity cycles. Currently we are at a structural point, where the cycle ended in 2008. This may be a short term resistance point. Thus far, the chart has been following the pitchfork trend-line quite well, and if this trend continues, I am expecting that the trend will touch the 0.618 fib retracement level in the next 2 years. Here's how rate cycles have developed since the 80's.
To sum up this idea. As I have discussed numerous times in my previous posts, expecting rise in volatility in 2020 until things settle after the election. This is just a noise. Most importantly in terms of growth and how equities will perform will be the outcome of the trade/cold war. China plays a major role in the liquidity cycle as the worlds biggest exporter. The cold war itself, at this point is here to stay. Phase I is completely unimportant in the grand scheme of things.
This is it for money supply and the SPX, thanks for the continuous support.
-Step_ahead_ofthemarket-
These are my two of my latest and most relatable ideas on the SPX and Investing.
The broad market outlook and guidance:
Investing Strategies, Value vs Momentum:
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>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content- contact me through any of my social media channels.
1. Naturally, there's a constant growth in money supply. Part of it ends up as investments in stocks. Hence, it is useful to look at the ratio between money supply and the returns on the market to assess the relative value of the market. This principle becomes especially important at the end of cycles, especially in a cycle that's driven by momentum. Comparatively, stocks aren't as overvalued as they were during the dot.com bubble, but at the same time the monetary base(purple line) has quadrupled.
In my last post I discussed the repo market and the balance sheet expansion.
To sum up this idea. As I have discussed numerous times in my previous posts, expecting rise in volatility in 2020 until things settle after the election. This is just a noise. Most importantly in terms of growth and how equities will perform will be the outcome of the trade/cold war. China plays a major role in the liquidity cycle as the worlds biggest exporter. The cold war itself, at this point is here to stay. Phase I is completely unimportant in the grand scheme of things.
This is it for money supply and the SPX, thanks for the continuous support.
-Step_ahead_ofthemarket-
These are my two of my latest and most relatable ideas on the SPX and Investing.
The broad market outlook and guidance:
Investing Strategies, Value vs Momentum:
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content- contact me through any of my social media channels.
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