Where the Money Is Coming From

6 hours ago

The stock market is hitting all-time highs despite a softening economy, driven by hidden liquidity sources rather than traditional metrics like M2.
Key hidden liquidity mechanisms include money market funds, reverse repo drain, Treasury General Account flows, stablecoin demand, and foreign capital.
M2 growth is only part of the story; money market funds and demand deposits have surged, indicating structural shifts in cash holdings.
Stocks can rally in stagflationary conditions due to nominal earnings growth, even if real returns are mediocre, as seen in historical examples.
The AI trade is bifurcating, with markets rewarding companies whose capex generates external revenue and punishing those with uncertain payoffs.
Potential risks include an AI valuation reset, private credit defaults, oil price spikes from Iran escalation, and Fed rate hikes if inflation accelerates.
The rally likely has 6-12 months of runway due to ongoing liquidity support, earnings growth, and lack of a dominant narrative shift.
Investors should watch key signals like employment data, Fed transitions, Nvidia earnings, inflation trends, and geopolitical tensions for market direction.

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