In early April, I made a prediction many called crazy.
Right on the heels of the March crash, I told you the “biggest bubble ever” was just getting started.
That the markets were about to get a jump-start.
After that, the S&P 500 Index staged a staggering 30% rally over the next two months. We had a slight pullback, and now the market is within 6% of its June 8 highs.
But even though the market rallied sharply, I still believe the best is ahead for stocks.
There’s something going on behind the scenes at the Federal Reserve — and in the halls of government. It’s helping reset the American economy and power this market. And one chart proves it.
Don’t Get Fooled by Doom-and-Gloom Pundits
Back when I wrote this article, the outlook was as doomy and gloomy as it gets.
New daily COVID cases were growing in excess of 30,000. Most of the U.S. economy was under stay-at-home orders. The workforce was shedding over 5 million jobs a week — much higher than the 281,000 lost in mid-March.
Meanwhile, bearish pundits were taking victory laps on CNBC and Bloomberg. After a decade of eating crow, they had finally found their 15 minutes of fame.
The U.S. had finally tapped out, they said. Our debt bubble was about to burst, and the Fed was powerless to stop what would come next.
Welcome to the Great Depression 2.0! Sell your stocks and head to the bunker!
And so, when I wrote that we were entering the “mother of all bubbles” … it wasn’t well-received.
After all, it was preposterous to think the market could bounce off those lows and climb in the face of all the doom and gloom.
Readers flooded our email inboxes with colorfully worded emails of disagreement. But when that happened, I was even more certain that my contrarian call was on the right track.
You see, there’s one simple thing you need to know to understand why this rally is going to continue, even after the pullback we’ve just experienced…
The U.S. Government Created Money at Lightning Speeds
A few months ago, nobody expected stocks to rally in the face of the worst economic news since the Great Depression.
But there was something going on behind the scenes at the Fed and in the halls of government that was setting the market up for an explosive rally…
The government was creating money at a faster pace than any other time in history.
$3 Trillion in Stimulus: For one, Congress enacted a $3 trillion stimulus plan to help idled businesses keep employees on their payrolls:
- Workers were getting paychecks for staying at home. Every American (apparently including 1.1 million dead ones) received a $1,200 stimulus check, with a nice note from President Trump.
- Those laid off received unemployment insurance, which was increased by an additional $600 a week.
- In half the states in the country, the stimulus was higher than the median wage. There has never been a fiscal response that paid people more for staying home than this one.
$4 Trillion in Reserves: On the other side of the equation, the Fed added $4 trillion in reserves to the banking system. Fed head Jerome Powell indicated the Fed is ready and willing to do whatever it takes to keep credit flowing to businesses and people who need it.
QE on Steroids: Even quantitative easing (QE) is stronger.
The Fed went a step further than its response during the 2008 financial crisis. To help inject money into the economy, it purchased investment-grade and “junk” corporate bonds.
These unprecedented actions by the government led to a sharp increase in the supply of money. It grew faster than at any time in history.
And one chart shows all this perfectly.
It shows something call the “M2” money supply growth. In a nutshell, this sum includes the total number of cash and checking deposits (called our “M1” money supply), plus savings deposits, money market securities, mutual funds and other time deposits.
Typically, M2 grows along with the economy.
Here’s a look at that growth over the past two decades:
Money Supply Skyrockets 18% After March 2020
There was a little bump in M2 growth during the 2008 to 2009 recession. It makes sense. During a recession, the Fed will try to coax the growth of M2 by lowering interest rates and extending credit toward banks.
And that was enough to ignite the last decade’s stock market rally.
Now, however, M2 growth has sharply accelerated. Since the beginning of March, the money supply surged 18%, from $15.6 trillion to $18.3 trillion.
Join America’s Reset Now
This flood of money has to go somewhere. It can either be saved, spent or invested.
So whatever Americans don’t put in their savings accounts will go into consumption or investments.
And both of these outcomes are bullish for the market, despite the doom-and-gloom naysayers.
That’s why I believe the mother of all rallies is here — a “reset” of the economy after the March crash. And it has a ton of room to run higher.
Now is the time to be in the market if you’ve been standing on the sidelines. America is getting a reset, and there are a number of what I call “tipping-point trends” set to deliver triple-digit gains for smart investors.
We’re perfectly positioned to take advantage of this race higher in Automatic Fortunes. In fact, I just recommended a new trade to my readers last week that I see doubling within the next year — and tripling within two! — thanks to the Great American Reset.
To learn how you can jump into this position before it’s too late, click here.
Editor, Automatic Fortunes