Stocks expected to boom due to global money supply

From Ambrose Evans-Pritchard at The Telegraph:

Barclays has advised clients to jump into world stock markets with both feet, citing the fastest growth in the global money supply in over thirty years and an accelerating recovery in China

Ian Scott, the bank’s global equity strategist, said the sheer force of liquidity will overwhelm the first interest rate rises by the US Federal Reserve, expected to kick off next month.

Read

Milton Friedman on Inflation and Money Supply

Can M1 project S&P 500 prices?

S&P 500 compared to M1
What is the relationship between M1 and the S&P 500?  Although time lags exist, the relationship between M1 and the S&P 500 is very tight.  So tight, that the correlation is .92.  Although Austrian and Monetary economic theory stats that general prices are determined by the growth in money supply, to see a correlation of this magnitude is truly astounding.  The period under study is from 1969 to 2014:

Summary
Average Ratio	1.3
Correlation	0.92
Min	0.56
Max	2.92
Current Ratio	1.49
Current Percentile	69%

The Average Ratio is the difference between the S&P 500 divided M1.  Correlation measures the fit between the S&P 500 and M1.  The Current Percentile stats where were are today as compared to history.  For example, the 69% suggests that the S&P 500 is over valued, but not to extremes.  

A detailed review of this study will be shared in subsequent posts.

Conclusion

Equity prices as measured by the S&P 500 to M1 can move much higher.

Introduction

This site is dedicated to the relationship between money supply, markets and liberty.  Money supply is used as a relative baseline to value asset classes, project price inflation and determine the current location of the business cycle.