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When we think of inflation we usually think of how much food, electricity or gasoline costs.

But there is another aspect as well: how much it costs us to buy financial assets.

The above chart at first glance may appear to be due to the strong performance of the 500 largest U.S. companies. But this is misleading: I believe it reflects more the effects of massive printing and inflation than how companies are doing.

The charts for the stock markets of countries with high inflation are similar: the more currency printing and inflation, the more the stock market rises.

That the S&P, which has an average return of about 10% on average has risen 30% in the last year is sobering. Let's think that in November 2020 we were already out of the stock market slump that was the COVID.

At the end of the day, anyone like me who has money invested in the S&P 500 can't be too happy about the 30% return because if we discount inflation it comes to almost nothing.

Inflation and the stock market are not exactly good metrics to compare because it depends on the stock. If you want to see where inflation is, look at prices over all consumer goods year over year, and then look at the general direction of the economy.

If you have a stock that is valuated high because of future projected growth, and that growth doesn't happen because inflation slows the economy and reduces growth of the company/sales, then the value of the stock will eventually come down. Other stocks

On the other hand, if you inject extra money into the economy in the form of stimulus when most people don't need it, a lot of that money ends up going into the stock market which will usually cause a bump in the market, but the effects of inflation are felt much later.

It's a bit difficult to compare.

Not really?

The stock market does have some correlation with inflation, but it is not the best inflation proof asset.

Why not just look at the inflation rate instead of trying to proxy it through some other metric? It's not hard to see that inflation is high, way above what central banks are targeting.

I mean, that's pretty much it. The federal reserve has been pretty aggressive with the money printing that it might be crazy to hold a huge amount of your wealth accumulating like 0.001% APR or something on your local bank. It simply just makes sense to hold equities and assets in general; the downside of course being that equities are inflated.

Not all stocks are like that, also better than having fiat that comes down to loss. If I will have to be open minded, there is nothing bad to diversify. But bitcoin and some other cryptocurrencies are most profitable since the last decade till now but there are some successful stocks too. Also the more the adoption, the less the volatility.

This is based on what I read. Have you read about gold also, that its price at $678 in 1980 have the buying power of its price of $2,142 in 2020. It's price per Ounce now is $1,795. While gold is seen as a store of value which is truly is.

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I do not think that stock market can be a direct indicator of Inflation, here are certain reasons why :

1. They increase in price undoubtedly during Inflation but the increase is usually much more since people flock to some investments to get a backup when the government won't be able to regulate the economy.

Therefore the change would be much more drastic.

2. Not all stocks are going up, some of them are going down as well and the investors are not being able to earn from them.

3. Inflation does not always have a positive impact, the companies are striving hard to maintain their price thus sometimes they will sell their stocks at a beneficial rate but the companies itself are also being affected by the inflation causing probelms for them as well.

- it can be a indicator but it's not universal-

Dude, be happy with a 30% return because annual inflation is nowhere near that as far as I know, at least not yet.

And while stocks and other investments aren't included in the "basket of goods" that the government uses to measure inflation, you'd better believe the stock market's sky-high prices are indicative of too much money chasing too few investments, which is just another form of inflation.  And man, I don't know when this party is going to come to an end, but I've had this feeling for at least a couple of years now that we're overdue for a crash or a major correction--it just never seems to come, and I find that ominous.

If I were you, Poker Player, I'd be watching out for warning signs and getting prepared to sell some of your stocks before (or at least shortly after, before prices get really low) that crash comes, because it's coming.  It's just a matter of when, not if.

OP, that IS a very clear sign of high inflation. All that extra money going to stocks, commodities, real estate, AND cryptocurrencies. But it will come down crashing soon, and prepare for the next cycle, OR hyperinflation. The government is spreading a new narrative that “inflation is good”. 8)

https://pbs.twimg.com/media/FEy6Uz6XIA0kUVJ?format=png&name=small

Yes, I think I've been a bit pessimistic before. Much better than having Fiat, of course, but in real terms the return is quite a bit less than that 30%. You have to think that the CPI index has been manipulated over the years to show what is convenient for governments, so inflation is much higher than what it shows.


I doubt there will ever be hyperinflation in the US or the EU. Think of it as being defined as a 50% monthly rise in inflation (https://www.investopedia.com/terms/h/hyperinflation.asp).


I had some stocks that I have already sold. Now I only have the S&P 500 left, and I don't care if there is a crash because I do DCA, and Bitcoin, which I do the same.

You can't really blame inflation for that.
When you think one thing is caused by that you should look at others to see if they match, let's check a country which experiened deflation, Japan:

https://talkimg.com/images/2023/06/12/AKpVP.png

Then something else must also be happening, DJI is  19,86 %  while NDAQ is 60%, so the growth is triggered clearly by some industries, and not all of them.


Hyperinflation in the US? I don't understand why you're happy about this, trust me even if your coins will be worth 1 billion and you could buy everything you wanted you wouldn't want to live in such a period. Unless you enjoy seeing people suffering.

The probability of hyperinflation is very low, yes, but it’s always better to have a back up/fall back if the Fed and the government loses its control over economic/financial system because of all their BRRR-money-printing. 8)

From what I've read, it seems that it's not so simple. For example, an excerpt from here (https://www.cnbc.com/2021/05/13/heres-why-stock-investors-are-watching-inflation-so-closely.html):
So it's not only about the fact of inflation but also about the circumstances of it. I've seen a similar thought in other articles as well, and sometimes stock can hold up against inflation, as long as the overall economic situation is good.
And while some rise might be attributed to growing inflation, it might also just be that there's more demand for these stocks and people are more willing to buy them, so the price is going up. Also, I don't realize why we need signs of inflation by analyzing the stock prices if the inflation rate is not something kept secret, right?
According to Guardian (https://www.theguardian.com/business/2021/nov/24/what-is-inflation-meaning-explained-us-economy-what-happens-how-worried),
So it is true that the inflation is on the rise, and it is true that the stock price is up, but it doesn't mean the two are causally related and, if so, to what extent.

One of the first money things I learnt about in school actually. Now I'm just putting it as I remember, and how the basics went, but we had in our country a period where the Japanese occupied and printed their own local money. But they kept printing more and more of it to give out to locals and try to quickly establish a new cash economy (they had to displace at least 2 systems that pre-existed).

Goods soared in price, and the scenes we're seeing now in some parts of Africa, the Middle East, and South America, where people are buying food with wheelbarrows of money, that's what my grandparents said happen.

And those businesses and people who bet on the Japanese staying for good, well, they lost a lot, while actually holding a lot of cash, when hyperinflation hit the roof. Those who preferred to hang on to old currency, or gold, waited out the occupation and made it out alive. It does make me wonder now what happened to stocks :)

Anyway, they were so numerous you can still buy these notes in mint condition in tourist shops and flea markets. We call them banana money (as they printed bananas on the notes haha). They were used in basic school to teach us about inflation.

That said, there are countries still betting on the dollar... and with euroskeptics getting stronger and the global south scattering their fortunes and still opting for dollarisation, I doubt anything catastrophic happens to the dollar in our lifetimes.

The stock markets in each country are often effected by both domestic markets and international ones. There's lots of international interest in growth stocks in places like the US, and interest in dividend stocks internationally in places like the UK and Germany.

However, things like REITs will obviously have an impact on inflation as they can send up the cost of living.

Many countries are still struggling to reduce inflation in their country since we escape from pandemic few years ago. Now that the price of a commodities is about to go up because the government refuse to print more money to prevent inflation from the country. Many investors are finding it difficult to make a good profit from their investment because of the way the price of market is developing some negative challenges in the market.
Many companies are preparing to close down production unit first week of December which will cause so much inflation in the country. Many products price will definitely increase to cause hardship in the country like the one citizens experienced during the covid-19, that takes place good one year and some months in the country.

https://postimg.cc/c6rFTWX0

This is both good but also very bad at the same time. It is bad because it shows that inflation has cost the nation a lot and we are going to pay a lot more for everything we buy, even though we look like we got "richer" in reality our money stayed the same so there is really nothing that helps us in this regard.

However, it is good because we may not have any money to invest at all and it would mean that we wouldn't be able to invest and we would be missing out on this. Imagine yourself being one of the people who are out of work because of the nationwide strikes and now you need to spend the money you have in your bank account, or maybe not even have anything in your bank account, that is the worst situation you could be in at that moment. This is why even though inflation is bad, at least having enough money to take advantage of this increase in stocks is good for all of us who invested into it.

From My own point of view of inflation, it is sometimes a correction and real inflation.

Like When I saw the bitcoin value is 51k I stop and thought there I will sell my bitcoin

Sadly it turned out a sad story it was too early to pull it out.

The best way here is really study the movements to help you with trading or stock trading

to simply put an answer to your question sometimes it is not a clear sign.

One key aspect to understanding markets and the economy is breaking down traders of assets by demographic. And recognizing how much of an influence each demographic can exert in terms of their liquidity.

We can see markets rise and fall. But not many know the liquidity of which demographic is responsible for price trends. Fewer still can identify motives which lie behind trades. This was proven during gamestop and dogecoin pumps. Where the majority struggled and failed to identify where the likely liquidity behind said pumps came from.

There are historical precedents to draw upon from past eras of inflation. Similar trends were observed post 2008 economic crisis. As well as the initial phase of COVID. Eras where stock market trends failed to make much sense to investors who have followed market trends for many years.

Awareness to inflation is rising could be another clear sign that it’s starting to be more noticeable than normal. There’s data showing that prices of second hand cars are surging in their ATH, which is something never observed before.

https://pbs.twimg.com/media/FFCIvk5XoAM_AxQ?format=png&name=small

I believe their next search phrase will be “inflation hedge”.

Simplicity says inflation is the increase in the monetary base.    We then try to map out how that money filters and recirculates with additional Fractional-reserve banking leverage in the economy, this is all fuzzy data open to interpretation and opinion hence why politics has eclipsed economics.    Stick to basics and we're into double digits of inflation in some years, far from impossible its just a repeat of history.  
     Humans are predictable in mistakes we just want to believe modern advancements nullified that but human nature hasn't changed massively over hundreds of years from my view even while civilizations develop, the base ideas to economics arent altered.    Inflation is the monetary base expansion and the rest of various theories is an attempt to justify this debasement by the growth occurring, some link inflation as growth almost the opposite of the truth imo.   Find a constant and questions are more easily answered, the economy is the people and growth is the work of those people not money expansion/inflation.

The trend of the inflation rate is already clear even without the chart, that's clear to see the fiat currency and the money we get after doing hard work is becoming worthless and it doesn't matter where you leave, even of countries, you will see the inflation rate buy recently in America everything is becoming worst than ever and the inflation rate is rising more comparing to the last years however the covid and economic crisis can be a reason for this situation.

That leverage is the main problem if you ask me. Even if there is a finite amount of money in the market right now, they could use it for something, do it a thousand times and repackage that thousand times into another time, then do it a thousand repackaging and call it another one and just keep doing that forever until there is no more repackage going around. So, there is a finite amount of money but somehow infinite amount of money spent, how? Simply because hedge funds and banks did it that way.

Technically speaking there are more debts to be paid then the cash available. Sure there are "networths" which are higher than the debt totals in the world, but the cash in banks, the liquidity basically is a lot less than the debt we have globally. Which means even if everyone got their money together and wanted to pay off all the debt, we couldn't. How? If we can fix that, we can fix inflaiton problem.

Yes, this is a sign of high inflation and perhaps this is just the beginning. The stock market, like the crypto market, has been filled with money printed in the United States for the past two years, which has already broken all records. All of this is implicitly leading not just to big inflation, but to hyper inflation, and now we are all witnessing this. Of course, at some point, this will increase the price of both company shares and cryptocurrencies, but in the end, all this will collapse, as has happened more than once. So a lot of interesting things await us in front of us, the main thing is to have time to fix the profit in time and probably to buy this profit.

Inflation is a pretty bad thing, you’re holding huge amount of money, but that money is totally useless, because things are costly in the market and before you know what’s happening you’re already done spending all the money on just a few things.

The covid-19 situation has really turned a lot of economies around the world upside down and causing them all to struggle. It has been the same way in most countries, and it’s worst in a case whereby the government is filled with leaders that doesn’t care to carry out their responsibilities to the citizens. Inflation keeps going up and the cost of things are high, and people are now looking for ways to save their value.

Inflation seems to be felt by many countries, especially during the pandemic which is getting worse and this is felt by the lower middle class whose impact is very significant because they are no longer maintaining values but looking for values to survive while the government does not seem to want to be burdened by them and hands off

Actually there are different metrics to measure inflation and it is surrounding us in every aspect of our life and sometimes we are just ignorant enough not to notice it.What you said is right that most of the time we are measuring inflation with rise in food items,gas prices and all that basic stuff but are not worrying about the big problems or that doesn't comes under our perspective easily.

The root cause of this inflation is dollar and fiat devaluing over time as most or say the trade is carried out in it and suppose you even earn $100 as profits from the stock and you keep that in your pocket will it still be worth $100 a year later also even though it is very near? The simple answer is NO because government has found a new game that is who will print more notes and sink their economic boats first.

Have you noticed about something called shrink inflation ever? It is paying same price for a product over some years but the company plays smart by reducing the quantity and packaging techniques we didn't notice them most of time.There are lot of things which we can take as inflation example like you have taken of stocks and S&P 500 but majority is busy at this time watching government decide their fate which is not gonna end up smoothly.

This is where btc enter the market and those who invest are the wise one's.The inflation chain is going to be more strong and you need something more strong to cut it and that's deflationary BTC

This is why the rich have so little cash around, they understand the system is rigged so it would be silly for them to keep a huge amount of cash around when inflation is going to destroy the purchasing power of that money, so they use all the money they have available to invest in whatever they want while just maintaining the minimum amount of cash necessary to keep their lives going, so in the end instead of being negatively affected by inflation they end up benefiting from it.

Also currency strength also determines how much inflation this stocks incures. International interest doesn't have much effect when compared to currency printing and currency value. The strength of a currency matters in relation to the price of financial assets and with the recent economic crises in many nations most financial assets will see another ATH making the inflation more intense

The best weapon against inflation is buying solid fiat, or gold, or the best BTC, if it is BTC better because in a fully inflationary economy, it does not matter that the BTC falls in price, in the same way it will continue to be worth a lot with respect to the internal economy that the country owns.
Another way to protect against inflation is by buying material things that are later sought by people and at that time it is possible to sell more expensively, and resort to looking for extra income at all costs, starting a simple business that can give money is another way to attack the problem.

I think that running your business with products that are not prone to financial crises is most likely the best way to protect your wealth from inflation. When we come up with material things right now I guess one problem could be that markets are overheated already., wouldn't you agree? I am not necessarily talking about the housing market, but also about watches and other assets. Right now things are expensive.

You can choose any index, even the price of property and possibly the best would be a commodities index. They all tell the same story: while growth is stagnant and there has been a massive real economic impact from COVID, the cannons wielded by the central banks are sprouting all the printed money and that goes to either paying debts, buying goods, saving or - most commonly - into stocks investments 401k's and the like. With the massive amount of index investing, this graph is only natural.

I never thought of a way which can help me create products which can never be wasted and are not prone to financial crisis because if such products would have come in the market, every businessmen would be successful. No business comes without risks and businesses also run on commitments. If S&P 500 is rising only, I duly believe that inflation is not too far from hitting the markets when we will be paying very high against the earnings we get from our work.

I'd say it's a clear sign that governments all around the world have been buying assets and printing money like crazy. It has been going on for far too long now, pretty much since the 2008 recession and it kicked back into overdrive mode at the start of Covid. Sure, they might have averted an immediate recession but it just tends to push the problem down the road and now we're starting to see runaway inflation. It's going to hurt a lot of people when interest rate rises kick in - credit has been so cheap for so long that people won't be able to cope when their mortgages start to double or triple in cost in a few years time. It was reckless behavior by central banks and rather lazy, they tend to change their minds and adapt too slowly while claiming to be super experts.

Sometimes I do ask myself, is it that the government doesn’t know the consequences of the actions that they are taking? How can a government that is filled with lots of people who can sit down and discuss any issue, not know that there are going to be consequences to the actions that they are going to be taking? Seriously, I do think about this a lot, because I’m sure that before the government takes any action there are lots of people there who would have to sit down and discuss about the action that the governments are going to take and whether it is a good one or not, and how it is going to affect the economy of the country.

Yeah, this is what my assumption as well. Still, if governments really know the conditions and what it is going to lead to, but they still go ahead and take that same action that they know is going to be very bad for the country? Despite that there will be a lot of citizens who will complain and point out to them what are likely to be the consequences of those actions that they are about to take, but they still go ahead and do it. I really hope that they find a way to fix all these problems that they’re creating now that inflation is about to blow up because of it.

There are two things that happen which causes politicians to act the way they do, to begin with they believe they are above the rest of the population, so even if what they do ends up affecting people they do not believe they will be part of the ones that are affected, the other reason is they believe this time will be different and they will be able to control the inflation they are generating, but we know that every single government before has thought the same and they have failed, and many times they will not realize their mistake until heads are rolling on the street, sometimes literally, but by that time it is too late to do anything about it.

I can understand what you are trying to say its just the value of the stocks aren't really growing its in the green simply because of the value of our currency is dropping and especially after 2020 but 30% growth is really a good figure if we just look at it from the returns perspective but do we really make any profits? And don't forget the tax factor we also have to deduct the tax rates from the growth so companies are in more beneficial and making money not the actual investors.

As someone who lives in a nation with clear high inflation and not even debatable, I can tell you that even stocks do not go up when things goes to shit. Why? Because the value of money becomes so worthless and people become so poor that people can't even buy stuff from those companies who are in the stock market, which results with those companies losing customers and losing profits and that ends up with losing value in stock market.

So, imagine an inflation so high that, even stock market doesn't go up when money becomes worthless. That is the true inflation, and god forbids any other nation to have something like that and I hope we will never have it again.

No this can't act as a barometer for Inflation, If we are going to value everything that rises in price as Inflation then even Bitcoin will expand due to Inflation one day.

It's true that the more the money is printed more the money reaches into the market and higher the stock prices rally, but this thing is generally temporary in nature because if the money printing isn't backed by enough economic development eventually it will fall one day because companies that would have promised these valuations won't be able to justify their valuation using their profits/ Revenues and eventually the market would fall like a house of cards when people would ultimately take their money out of overvalued stocks.

This is true, at the early stages stocks go up as people have too much money which was printed by the government and they need to choose a place to put it, and many choose stocks to do this as for a time it seems it can outpace inflation, however eventually things get so bad that assets like that begin to perform poorly, governments try to rescue them by printing more money but this only makes the problem worse, eventually crashing the stock market and the whole economy with it.

Idk, this looks like mis matched example of inflation or may be it does not connect the dots properly. The share chart which you have shown here is incremental over the year period which indicates the performance value of the 500 companies included in it. It's not inflation. The company share value will rise all the time if they are having good performance. If the value is rising then it means their products and services are being liked by everybody and they are using it for their good terms. Moreover as they keep growing they are actually hiring more an d more employees to lower the burden of company work force.

I see it completely different way. Its more or less companies growth. Inflation would make the companies dead, bankrupt, resignations of employees and what not. If their products get costlier then they should see lesser users of the same who would go and search alternatives. That way company share should ideally go down and not up.

I have studied finance at university and I can say and inflation affects all financial assets.
Especially the stock market.Only real estate(besides Bitcoin) can provide enough protection against inflation,which means that the real price growth minus the nominal price growth(caused by inflation) cannot become negative.Real estate assets cannot get devalued due to the inflation.Stocks can get devalued and government/treasury bonds can also get devalued by inflation.
It is pretty clear that the Federal Reserve money printing boosted the S&P 500 index a lot,during the last decades.Traditional financial markets are a giant bubble.Crypto markets are a giant bubble as well,thanks to the money printing made by the central banks.

Yes, but it’s not stocks that get devalued, it’s the currency. Increasing inflation is a effect of the money printer. It increases the money supply, and therefore increases demand, and increases the prices of stocks, real estate, used cars, almost everything. Then because of it, it creates bottlenecks on the supply side, causing inflation to increase further/faster.

Japan is no longer on deflation, there are clear signs of economic recovery and even though the Japanes CEOs are extremely conservative when they set their expectations, the growth is more clear if you look at the small caps. Many of them with a high technological component. Also, Japan is a country that is particularly well suited to embrace several of the key technological drivers expected by the future: mid and high tech manufacturing, robotics, AI,... they do not make as much noise, but they are certainly embracing the change.

There is inflation and that is the cause of a general index growth - simply the FED giving money to every zombie company out there - NASDAQ increase has a concurrent factor: COVID advanced work from home and app based services by 10 years.

Of course, in times of high inflation everything is possible, however the business with watches, or with any other asset is valid, in my country people passed food, medicines and anything to be able to change them to foreign currency, even today what is happening is gasoline, copper, some thieves chose to pass the copper from the electric power cables, they stole it and they passed it to earn more money, and only then to be able to find or buy food and any basic item.

I didn’t notice stompix’s post. Happy about this? No, why would I be happy? Plus it isn’t a jeer on the people, it’s a jeer on the Federal Reserve, and government as the lying becomes more shameless. They are treating plebs like shit, manipulated, gaslighted and brainwashed. The majority believe their lies, believe it or not.

This is quite bad, and it is as if no one wants to fix this problem of inflation. It just got worse during this coronavirus pandemic. For the fact that people had to stay indoors, during the lockdowns and then things are also getting costly to the extent that most of them wouldn’t be able to achieve it, that’s very bad.  It’s really got a lot of things destabilized this year. I know how costly things got in my country and people are just finding it difficult.

There were even people who lost their job as a result of the pandemic as well. Those are the ones who I pity the most. Especially the ones who have families to take care of. Solving this issue of inflation should be a priority for the government. Printing too much money wasn’t really a way to go, because they knew this was going to affect the economy later.

At the end the only thing we can do to protect ourselves is to invest in fundamentally strong assets, real estate maintains its value because we all need a place to live so there is always going to be demand for it, however since real estate can be so costly it is difficult to sell during a time of crisis, so it is important to have a significant amount on assets that can be traded more easily, and under a scenario of hyperinflation gold, silver and bitcoin seems like the best assets to have.

It is very interesting about overvalued stocks, but there is something that worries me, or perhaps it is just a small intuition, whenever problems arise regarding falls in the global economy, who applies as fundamental is some variant of covid-19, I do not know if they do it on purpose or as a strategy, but it happens that it is always the perfect excuse for entertainment, in several countries the way to close their borders is being evaluated, obviously all economic problems are skewed towards these fundamentals.