Monetary theory says that:
Q*P = M*V
Q = Quantity of goods and services produced (GDP)
P = Price of goods and services produced (inflation)
M = Money supply (M2)
V = Velocity (the number of times per year a dollar is spent)
With higher M we get higher Q or high P (preferably Q). Because V has dropped so quickly, the response of both Q & P has been muted.
Going forward, here's what I would worry about:
1) Higher interest rates leading to lower valuation multiples for stocks. This could also wreck havoc on home prices, which were supported by cheap mortgages.
The early stages of inflation are usually quite benign. The later stages are not as much fun.
2) Higher taxes. Specifically, taxes on capital gains and inheritances. Because at some point, we have to pay for all of this.
So far, we haven't seen either of these things. As they say in New Orleans, laissez les bons temps rouler (let the good times roll)!
I am most intrigued by cryptocurrencies (specifically, Ethereum) as an alternative monetary platform that operates independently of the Fed. Over the centuries, governments have rarely shown restraint with regards to printing money or spending within their means. The big risks to crypto here are technical (is it possible?) and regulatory (will governments thoughtfully embrace and regulate cryptocurrency, or will they crush it?)
Jim Lee, CFA, CMT, CFP