Faced with the most severe economic downturn since the Great Depression, the U.S. Federal Reserve did the only thing it could: flood the financial system with liquidity.
The move to so-called easy money arguably saved the world from a worse fate and radically changed the economic backdrop as well as the landscape for financial markets. The monetary base, which consists of U.S. currency in circulation and reserves held at the Fed, is our chosen proxy for easy money—of all the metrics available, it's the one most directly influenced by central bank actions.
Cutting the federal funds rate to zero and engaging in large-scale asset purchases caused the monetary base to explode to $3.9 trillion as of the week of Jan. 20. Since mid-September 2008, the monetary base has expanded by more than 350 percent, while the money supply has grown at a substantially slower clip.
Using Bloomberg's correlations matrix function (CORR <GO>), we took a look at what boats this rising tide of money pulled up. For investors, the beginning of the end of the easy-money era in the U.S. has caused considerable pain in financial markets, with stocks and oil as two examples of asset classes that have deteriorated while the monetary base has remained relatively steady.
So as a caveat, some of these correlations may appear to be spurious, and there is certainly no guarantee that these relationships will be replicated in upcoming cycles.
In any case, here are a few things that correlate with easy money, whether moving in the same direction or the opposite.
Equities
Probably the best known of all of these cases, stocks have a nearly perfect correlation with easy money. Here's a look at the S&P 500 vs. the U.S. monetary supply.
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