Global Liquidity Is Rising And So Will Asset Prices

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To investors,

Cheap capital is coming fast and furious. Crossborder Capital has reproduced their famous chart of global liquidity, which shows the cyclical uptick we are beginning to experience.

The rhythmic nature of global liquidity is almost hard to believe. Joe Carlasare points out:

“I’ve seen this chart shared dozens of times. However, it’s proprietary and I’ve never been able to recreate it. Call me a skeptic, but it seems that it would be prudent to understand the inputs of this chart before people put a lot of faith in it.”

Whether you agree with Crossborder Capital’s chart or not, there are plenty of other data points showing cheap capital is on the way. A simple one is the number of monthly central bank policy rate cuts around the world.

September had the largest number of collective cuts globally since April of 2020. As central banks continue to cut rates, investors won’t be able to help themselves — borrowing and investing will accelerate.

Economist Daniel Lacalle shared a different chart of global net liquidity, while saying “global net liquidity is exploding. This means unprecedented monetary destruction, economic secular stagnation, and risky assets' expansion.”

Monetary policy decisions have consequences though. An easy place to see the destruction of the US dollar is in the income-housing gap. John LeFevre says:

“The income required to afford the average house in the United States:

• 2020: $53,679

• 2024: $121,398”

That is a monstrous increase in a half decade. But that is not the only concerning data point. Porter Stansberry shows “eating out is becoming a luxury for many Americans. The Restaurant Performance Index, which tracks the financial health of U.S. restaurants, is in its 10th straight month in contraction zone.”

Do you get it yet? Do you see what is happening?

Central banks are stimulating economies, which will devalue the dollar and other fiat currencies. It will flood the market with cheap capital. Your purchasing power will be eroded away and asset prices will be inflated.

Savers lose, investors win.

The only test that matters in finance for the foreseeable future is “did you invest or did you save?” Hopefully everyone reading this letter has an intelligent answer that balances emergency savings with an investment portfolio.

Regardless of what you do though, central banks are running their playbook. Drop interest rates. Print money. Stimulate to avoid catastrophe. Increase the debt. Kick the can down the road. Let someone else pay for today’s sins.

Everything is fine until we get to the end of the road. Fingers crossed that is no time soon. Hope you all have a great start to your week and I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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