Don't Forget About Inflation

Now that velocity is coming back, any further easing in monetary policy will be like throwing gasoline on the fire. This is exactly what happened last week when the Fed announced a plan to print more than $1 trillion in new money, setting the stage for a sharp inflationary resurgence that is likely to catch many investors by surprise.

Gold fell to roughly $700 an ounce last year, but is now near $950. This is an early signal of excessive monetary ease. And oil is now above $53 a barrel after falling into the mid-$30s-per-barrel range last year. This is a sign of both easy money and a return in velocity.