The post-COVID investment landscape presents a striking paradox: despite geopolitical tensions, inflation concerns, and trade wars, asset prices have soared to extraordinary heights. The explanation lies not in fundamental economic strength, but in an unprecedented tsunami of liquidity that has fundamentally altered market dynamics.

The $10 Trillion Question

Since 2020, approximately $10 trillion in new money has flooded into US financial markets, a staggering sum that helps explain why the NASDAQ has surged 200% in just five years, delivering returns typically expected over two decades. This isn't normal market appreciation; it's the direct result of two powerful forces converging.

First, genuine money printing. While quantitative easing after the 2008 financial crisis was largely "sterilised", banks received cash for their bonds but didn't lend it out, COVID changed everything. Governments worldwide, particularly in Anglo-Saxon countries, gained social license to directly inject cash into the economy. JobKeeper, stimulus checks, business grants, approximately $5 trillion was created and distributed directly to consumers and businesses. Unlike QE, this wasn't theoretical liquidity; it was real money in real bank accounts that needed somewhere to go.

The Tariff Irony

The second $5 trillion came from an unexpected source: foreign capital flows into America. It is especially surprising that even since Liberation day we have seen mooney rushing into America, not away from it. Trump's tariff threats, designed to reduce imports and strengthen domestic production, triggered the opposite response. Companies front-loaded purchases, building massive inventories ahead of expected trade restrictions. China accelerated exports to beat tariff deadlines. Foreign investors, rather than abandoning US markets, poured money into American assets, viewing them as the safest haven in an uncertain world.

This represents one of history's great policy ironies: protectionist measures meant to reduce America's current account deficit actually increased it, as the threat of future restrictions triggered an immediate surge in present activity.

Retail's Revenge

Perhaps most remarkably, this liquidity wave isn't being driven by institutional investors but by retail traders, many using unprecedented leverage. Flows into leveraged ETFs—instruments that amplify market movements—have exploded from virtually nothing to over $60 billion. When everyone leverages into the same crowded trades, particularly technology stocks, it creates a self-reinforcing cycle that can persist far longer than fundamentalists expect.

The Inflation Escape Valve

Traditional economics suggests this money printing should trigger massive inflation. While we've seen some consumer price increases, the truly spectacular inflation has occurred in asset prices—stocks, bonds, real estate. The $4.5 trillion still sitting in cash and money market funds represents dry powder that could extend this cycle well into 2026.

Looking Forward

Understanding debt monetisation and liquidity flows is crucial for navigating current markets. We're not in a traditional business cycle driven by earnings and economics; we're surfing a liquidity wave created by unprecedented fiscal and monetary experiments. The music is still playing, and with trillions in cash still on the sidelines, it may continue longer than skeptics expect.

However, history suggests that liquidity-driven markets eventually face reckonings. The dot-com bubble showed us what happens when the tide goes out, even quality assets can fall 50% or more. Today's investors must balance participating in the rally while preparing for its eventual end. The key isn't predicting exactly when the music stops, but ensuring you're not the one left without a chair.