re: The DowJones Industrial Average AND the S&P500 Index both closed at record highs today

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I don't get the point of this whole argument. Inflation has been bad the past few years. It's been bad in the past. It'll be bad in the future again at some point.

The most reliable way to outpace it over the long term is to invest. Everyone should be rooting for the market to thrive, especially those pissed off by inflation.

So again, what exactly is the point of a "yah but inflation" argument in this thread?

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For me, it's a lot more than just inflation but rather the full context of why we're seeing the inflation we've seen as well as the impacts of that.

I think we can all agree with the old adage of inflation being too many dollars chasing too few goods. If that adage holds true then cramming a couple trillion dollars into the economy in just a handful of months means inflation should skyrocket.

If inflation skyrockets then wages have to rise to keep pace, jobs have to be cut to cover rising production costs or some level of both must occur. During this time, the Fed will need to raise rates to drain the excess liquidity from the economy (in order to lessen inflation).

So that's pretty much where we are and I think most here agree with that assessment.

The market doesn't necessarily reflect the current economy, but often tries to reflect the belief of what the economy will/should be. Before the downvotes start raining down,



please hear me out.

We can see by how consumer debt has grown that many consumers have been fighting inflation by carrying those excess costs on their credit cards. We can also see the dramatic increase in interest rates with those cards. Along with that, we can look at the sharp climb in delinquency rates on those cards as being a signal that consumers are on increasingly shaky ground.

If this stance is true, then as consumers exhaust their credit access, the economy turns downward as fewer purchases are being made. A signal that consumers may be reaching that point would be an increase in bankruptcy filings, and that's what we are starting to see. That alone isn't an issue, but when taken within the context of high interest rates on debt and inflation still increasing, it becomes more likely that it we will continue to see an increase in filings.

Now let's take all of this information and add to it that one of the markers the Fed is looking for to signal that it's time to cut interest rates is a rise in Unemployment. Unemployment has remained sticky at around 3.7%-3.8% for almost two years now. If the above stance is correct, then it's done so increasingly by consumers taking on more and more debt at higher and higher interest rates while inflation has continued to rise well above the Fed's target of 2%.

Speaking of CPI, while the rate of growth has dropped greatly over the last two years, it seems stuck at ~3.1% (this is despite PPI having been hovering around 1% since May). When digging into the numbers, we can see that much of CPI's drop is due primarily to energy prices coming back down. That's great, but energy prices are going to need to go lower and stay low for a good 6-12 months for their impact to filter from producers down to consumers enough to be noticeable at the checkout kiosk. This, at least to my way of thinking, is going to be a big driver in determining whether we get through this with a recession (at least one acknowledged to the point of being undeniable by the current administration) or not.

If this is all accurate, continued high inflation and continued high interest rates are fueling a consumer credit bubble. If inflation continues to remain high, rates remain high. If rates and inflation both remain high, we should see more defaults and (eventually) more bankruptcies. The answer would then be for the Fed to lower rates, but if the Fed lowers rates too soon we're likely to see a return of inflation as not nearly enough liquidity has been drained from the economy yet (whether you look at M1 or M2, we're still trillions above pre-COVID levels).

The market and the economy are intrinsically connected but it doesn't mean the market follows the economy. The market is generally positive, looking for ways to believe things are good (stonks). While this is great for investing, it means there can be a bit of a blind eye towards economic realities (see: the market's negative reactions to most of the rate hikes over the last two years, for example).

All this is to say that for someone like me, it isn't that I'm not rooting for the market to thrive but rather the underlying issues in the economy have me holding my breath while I wait to see if this consumer debt bubble pops or just quietly deflates.