Chart of the Day: Dow Jones vs Monetary Base
The chart below comes courtesy of Andy Kessler and shows the strong relationship between the movement in the Dow Jones Industrial Index and the monetary base. The monetary base data is defined as the “sum of currency in circulation, reserve balances with Federal Reserve Banks, and service-related adjustments to compensate for float”.
The extraordinarily loose monetary conditions will not last indefinitely and the main head wind for stock markets to look for will be a tightening monetary policy, eventually followed by an inverted yield curve.
Source: Andy Kessler, September 25, 2009.
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