InfraCap Report Update, New York, NY ~ Almost every OECD central bank is projected to cut rates substantially during 2024 with the average projected cut implied by the futures markets over 100 basis points. Many investors do not fully appreciate that to effectuate that reduction, central banks must inject capital into the banking system, increasing the Global Monetary Base (GMB).
Historical Significance of Global Monetary Base Updates
You can see from the data in the chart below that increases in the global monetary base (GMB) are highly correlated with stock and bond prices. The 32% increase in the GMB in 2020 followed by a 12% increase in 2021 created an enormous stock and bond market rally. It also created a bubble in certain asset classes such as SPACs, meme stocks, and cryptocurrency. The 2022 decline of 5.3% coincided with a broad decline in both stock and bond prices. The small increase in the GMB during 2023 allowed stock and bond prices to stabilize and rally towards the end of the year.
2024 Forecast for Global Monetary Base Updates or Changes
We are forecasting that global central banks increase liquidity by approximately $2 Trillion (8%) in 2024 to lower the policy rate by approximately 1%. We also expect a similar increase in 2025, setting the stage for a multi-year rally in stock and bond prices. We expect that European central banks will move sooner and be more aggressive than the Fed. Currently, the European economy is very weak. However, the US stock and bond markets will benefit from European easing as global sovereign bond markets are highly correlated. We reiterate our 5,750 target on the S&P. We believe the greatest risk to the upside is based on the expected surge of liquidity and continued momentum from the AI boom. CLICK HERE to see other recent InfraCap updates and analysis on GMB and other economic drivers.
