Inflation

This comment by JYL at this Heisenberg Report post should be the standing answer to any question about the current inflationary environment.

In one month in early 2020, 20% of Americans lost their jobs. The same happened worldwide. We were on our way to another Great Depression.

There was no time to finely calibrate fiscal and monetary policy to do “just enough” to avert calamity but “not so much” as to unleash inflation. I question if such a delicate balance was even possible, because the tools are inherently crude. We all know that the Fed can only pump liquidity into the markets, with no way to direct what that liquidity does. We should also remember how the Federal and state govts struggled to get pandemic assistance to households and businesses (in my state, the unemployment system broke down chaotically and people waited many months before seeing any money at all). How, in 2020, could the govt possibly have gotten households just enough money to eat and stay housed, while preventing any spillover to consumer goods?

We are in the current inflationary boat because it is a lot better than being at the bottom of the ocean. And let’s be honest, for many households, current inflation is merely irritating. Personally I can’t say it has had any material effect on me at all. Suppose unemployment today were 20% and SP500 at 2000. Obviously that would be far worse for just about everyone.

Great Depression, averted, good job. Now let’s put out the inflation. Sure, we may get a recession and a bear market. The recession part will probably be mild. The bear market part – well, there are various SP500 targets out there, but even the more pessimistic ones still imply solid 3 year investment gains.