What if I told you that the health of the bull market could be monitored with one simple chart?

You see, back in 2012 I realized that the evolving bull market was being driven by one thing – central bank money printing. It was this new creation of money hitting the market that consistently drove it to new highs.

I knew that there was money coming in. And I knew that this would be a long-term bullish trend…

But I didn’t have an easy way of tracking the flow of that new money. So, I created an index of my own.

My custom index combined the total balance sheet assets of all the major central banks like the Fed, ECB, Bank of Japan, Peoples Bank of China, and others. I then rebased it to dollars and charted it. That index has since become one of my most trusted measures for monitoring the health of this bull market.

Here’s how it works…

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At the bottom of the chart, you can see the time period. As the line moves higher – more new money is flowing into the market.

Back in 2019, I was worried about a potential recession. After all, the index had been trending lower for a year already. That meant the supply of new money was contracting.

And when the supply of money goes down, it’s a lot harder for a bull market to continue. When the pandemic struck at the end of 2019, it accelerated everything. We went into the recession quickly and the monetary response was one of the fastest in history – the banks printed more money than ever.

The total assets of the global central banks jumped by $10 trillion in a year. That was a 33% increase, and even today the figure is still rising. The Federal Reserve is still buying $120 billion of bonds every month.

That’s a massive source of additional new money that’s chasing the best possible return in the market.

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All that new money floats around looking for a home in the most productive assets. It helps to fuel bull markets in the most attractive sectors like tech, crypto, and global stock markets. That’s why I’m not worried about a recession any time soon.

In fact, since central banks will do whatever is necessary to ensure growth continues, I don’t think we need to worry about a recession for at least another few years. When central banks are worried about excesses in the financial markets, they take money out of circulation.

That means the total assets on their balance sheets shrinks. That will happen before any future recession.

If you’re wondering why the stock market rally has been so resilient, and why it rebounds so well after only a couple of days on the downside, it’s because that new money is looking for a home.

Remember, capital is global and mobile. That means money created in one country doesn’t have to stay there. It’s naturally drawn to the most attractive assets. For years, that was the U.S. We had a strong currency, higher interest rates, strong growth, and innovation to attract international capital.

Today, we still have plenty of liquidity, but the dollar is weakening and interest rates are close to zero.

As the dollar weakens, one asset becomes stronger… Gold.

Gold is becoming more attractive to investors.

The consequence of printing $10 trillion in additional assets is that the purchasing power of all currency declines. That creates a demand for alternative hard assets.

In the last year, the price of gold, real estate, and bitcoin have all responded at different times to this trend. Bitcoin had a big wobble this week, but gold is only just starting to perk up after a nine-month hiatus.

One way to gain exposure to gold is through the VanEck Vectors Gold Miners ETF (GDX). Right now, GDX looks like a bargain at current levels. Consider buying some if you haven’t already.

All the best,

Eoin Treacy
Co-Editor, Market Minute