Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety

of perspectives, I'll be talking about the latest trends in the financial marketplace.

It's Monday, August 3rd at 11.30 a.m. in New York.

So let's get after it.

With the U.S. and global economies in the midst of one of the deepest recessions and output

gaps on record, most investors have

ignored the rising risks of inflation.

After all, how in the world are we going to get inflation with unemployment north of 10%

and excess supply in everything from oil to hotel rooms.

While we are likely to experience big imbalances in the real economy for several more

quarters, if not years, the most powerful leading indicator for inflation has already shown its hand, money supply.

As renowned economist Milton Friedman famously said 50 years ago,

inflation is always and everywhere a monetary phenomenon.

Currently, money supply growth is 22% on a year-of-year basis,

the highest on record by more than 10 percentage points.

If Mr. Friedman is correct, shouldn't the risk of higher inflation be greater than it's ever

been too? Of course money supply also grew rapidly after the great

financial crisis and we never saw inflation appear in a meaningful way. This fact has

emboldened the view that the Fed can print as much money as they want and it won't lead to inflation.

We've argued for the past several months that the policy response to this health crisis has been very different than what was

used during and after the great financial

...