It’s been inflation all along. First in asset prices, now in consumer prices. It’s not possible to indefinitely have the first without the second … after all assets can only be ultimately worth what you can buy with them.
So there are only two possibilities. Inflated asset prices must come down or consumer prices rise to meet them. Or some messy combination of both.
The S&P 500 stock index has risen seven fold since bottoming in March 2009. The economy has not grown seven times as productive. There is only one possible explanation tor the difference … inflation. Yet after months of breakneck consumer price inflation, consumer prices have risen a mere fraction of that.
Economists and investors who fancy that the Fed can prevail over inflation without a serious bear market are due for a reality check. Consumer prices have a long way up to go if you’re not willing to tolerate a major bear market. Either way, those assets are going to lose purchasing power.
But when? This is the year of the reckoning. Consumer price inflation has finally gotten the attention of politicians and economic policymakers. The printing presses are slowing and interest rates are rising. I think it’s no mere coincidence that Synthetic Systems pegs a major trend change in the second half. If anything, the charts most likely understate its magnitude.
Alas, it wasn’t necessary. Had policymakers not engaged in the fantasy that rising asset prices somehow exist outside of the sphere of inflation, they would have begun to allow interest rates to rise as early as 2013, when the financial crisis was fully in the rear view mirror. Instead they continued to inflate, convincing themselves that tame consumer prices gave them the all clear and that the ballooning stock market bubble was merely indicative of prosperity.
It wasn’t. It’s been inflation all along.