Cheap money lifts just about everything. Enjoy it while it lasts.

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Money has never been easier, companies benefit from raising cheap capital and the Dow closed the week with a record. What else is there to know?

Stock and bond markets have apparently come to terms with the likelihood that the Federal Reserve will make its long-awaited announcement about slowing down its massive purchases of securities next month. And while central bank officials are scrambling to explain that reduced bond purchases don’t equate to tightening from rate hikes, the Treasury and short-term interest rate futures markets have priced a two-quarter-point hike into the federal funds’ key rate target. by the end of 2022, from the current low of 0%-0.25%.

For now, however, monetary conditions are the easiest ever, according to Strategas’s Thomas Tzitzouris. His calculations are based on the ultra-low 10-year real yield of inflation-protected Treasury securities, or TIPS — negative 0.95% — and the high implied expected inflation of 2.62% (derived from the difference between the yields on the 10 -year-old and the associated TIPS). This corresponds to other measures of loose conditions of

Goldman Sachs

and the St. Louis Fed, which would “indicate that things have rarely, if ever, been better,” he writes in a customer note.

All that cheap money is put to work, if not always wisely.

ProShares Bitcoin Strategy
(ticker: BITO) became the first Bitcoin futures-based exchange-traded fund out of the gate last week. That helped push the underlying cryptocurrency to a record high on Wednesday, before pulling back towards the end of the week.

The money that was previously collected through corporate takeovers is also put to work.

We work

(WE), which failed spectacularly when it went public a few years ago, merged with SPAC BowX Acquisition, for a market cap of $9.5 billion, or about a fifth of the expected value of the aborted IPO. And recalling the frenzy in meme stocks early this year, Digital World Acquisition (DWAC) rose more than 800% after the SPAC said it would merge with Trump Media & Technology Group.

But as usual, the big money came from the bond market, which is a borrower’s paradise, to cancel the term coined by Mark Grant, chief fixed-income strategist at B. Riley Securities. More than $50 billion was raised in the investment-grade corporate market last week on favorable terms for issuers, notes Cliff Noreen, MassMutual’s head of Global Investment Strategy.

Topping the week’s calendar was a massive $21 billion offering from

AERcap Holdings

(AER) to help finance the acquisition of the Dublin-based company

General Electric
‘s

(GE) aircraft leasing company. Cruise Line

Carnival

(CCL) was also back to tap the high-yield market for a private deal to refinance more of the debt it had taken on to keep it afloat during the pandemic. By providing liquidity to the financial market, the Fed has been of great help to the Covid-hit aviation and cruise industries, Noreen noted.

The stock market also appeared to be boosted by reports of declining prospects for tax hikes as negotiations between Congressional Democrats over the Build Back Better measure drag on. sen. Kyrsten Sinema (D., Ariz.) reportedly will not agree to tax increases on corporations, capital gains and the top marginal rate for individuals, as proposed by the House version of the legislation. Since the bill’s cost could now drop significantly below $2 trillion, Goldman Sachs’ Alec Phillips writes, changing some aspects of the corporate tax law could bring in enough money to fund it, without the statutory rate, currently 21%. to 26.5%, as the Chamber had sought.

But the less pleasant aspect of easy money is inflation, which is likely to last longer than what Fed officials had predicted. And it’s not just because of the widely publicized supply chain snafus or rising housing costs.

Read more up and down Wall Street:Is stagflation coming back? Economist sees parallels with the 1970s – and major differences.

House prices have risen 19.5% in the past year, according to Case-Shiller data, writes Joseph Carson, former chief economist at AllianceBernstein. on his blog. However, for political and statistical reasons, they have been removed from the official price indices. If they were still included, inflation would rise to 10%, as opposed to the 1980s, he adds.

To eradicate this inflation, far-reaching interest rate hikes could be necessary in the future, with unavoidable adverse effects on the economy, Carson concludes. So enjoy the easy money while it lasts.

Write to Randall W. Forsyth at [email protected]