The volcano of hot, easy, fast money belches on. There are two major and contradictory trends underway.
At the top, red-hot money spews out of central banks like sparks out of a volcano. From the Vesuvius at the central bank of China, the money supply continues to rise twice as fast as GDP. In India, M-3, the usual measure of money supply, grows at 20% per year. And from the Krakatoa of Japan (as well as its alpine peers in Switzerland) borrowers can take out as much of the hot rocks as they want – at practically zero interest rates. And in the United States…Americans have their own molten Mt. St. Helens…spewing approximately $850 billion of current account deficit each year into the world financial system.
The hot ash and smoke goes up into the air…is caught by the winds and airstreams…and floats down in often curious and remarkable places. We see, for example, that the Dow and the S&P rise steadily. But at the art houses, the rise is spectacular; as recounted here just yesterday…some artists’ works have gone up 300% in the last seven months. Private jets are getting a lift too…they’re in such demand that it takes two years to get delivery of a popular model – even when you pay in cash. And who would have believed it, but houses in Latvia have gone up 67% in the last 12 months.
All this white-hot money…the red hot lava of cash and credit…warms hearts and hands all over the planet. House prices doubled in Moscow last year. Even the price of skimmed-milk powder has gone up 60% so far this year. And the Kuala Lumpur stock index has gained 24%.
“No surprise to see Shenzhen and Shanghai kicking butt,” writes colleague Dan Denning from Australia. “But who would have guessed Mauritanian bonds would do so well?
Everywhere we look, we see happy faces. Emerging market investors are having the time of their lives. In the last three years they’ve put $1.5 trillion into these treacherous markets – twice as much as the previous three years. Now, they congratulate themselves. Prices have gone up, they note, apparently not realizing that it’s their own money that has pushed them up.
But while the world’s moneyed classes celebrate their own good sense and good fortune, down below all is not so well. By the time the lava filters down to the American and British proletariat it has grown cold and hard.
“Consumers pinched by rising gas prices,” says a CBSMarketwatch headline. Analysts are predicting gas prices of $4 a gallon. Consumers are wondering where they will get the money.
“Governors want action,” comes another headline. Hahaha… what sort of action do the governors expect? Investigate the oil companies? Subsidize the refineries? Control gas prices?
But don’t worry; there is no problem that politicians can’t make worse.
Markets and Money