The Federal Reserve continues on its tear of unprecedented monetary inflation.  The only thing that compares to it is from the fall of 2008.  But I don’t see the Fed’s balance sheet expansion significantly slowing down any time soon.

The federal government is spending money as never before.  It is spending more than anything ever in the history of the world.  Of course, the United States is (or was) the wealthiest place ever, so the U.S. government has deep pockets.  It also has the Federal Reserve.

It also helps that the U.S. dollar is still considered the world’s reserve currency.  It means that foreign central banks still want U.S. Treasury bills.  It means that immigrants in the U.S. still send cash abroad to relatives. It means that there is still a lot of demand for dollars.

I have no idea what consumer price inflation will look like a year from now.  I expect it will largely be a mix.  Some things will be much more expensive.  Some things will be much cheaper.

We have this massive monetary inflation, at least when it comes to the Fed’s balance sheet.  But there is also a lot of fear and uncertainty, which means people are tending to spend less and save more where possible. The velocity of money has slowed for now.  But if massive monetary inflation seems to be the new way of life, then velocity could pick up quickly.

Even though most people don’t study economics or the Fed, they intuitively understand that they don’t want to sit on a lot of cash that is going to buy a lot less next year than it can buy today.

Maybe this is why stocks are going higher.  I find it unbelievable that they are, but nothing should surprise me any more with the stock market.  I got this wrong many years ago during the Fed’s QE.  I thought that if stocks would continue to go up with major monetary inflation, then gold and other commodities would go up too. But, at least for a while, it didn’t really work out that way.

Bubbles have a way of continuing.  They almost seem to be self-perpetuating at times.  However, it is important to recognize reality in the midst of a bubble.

I thought there was no way stocks would see highs again this year when they tanked in March.  The Nasdaq is now hitting all-time highs.  Maybe we will see 10,000 this year after all.

It is insane to me, but I don’t control the markets.  Stock investors have blown off 40 million unemployment claims.  They have blown off defaults and bankruptcies. They don’t think much about profits any longer.  They concentrate mostly on the Fed’s inflation.

I keep wondering how long stock prices can stay inflated when profits are way down or cease to exist.  The market is not Amazon and Apple.  If Amazon, Walmart, and a few other tech companies were hitting all-time highs but everything else was going down, then this would make sense.  But this isn’t what is happening.

I have no idea where this is going.  I still expect stocks to get hammered, but who can say any more?  I am mostly out except for my core permanent portfolio holdings and my speculations in certain sectors, particularly gold miners.

We’ll see if there ends up being a decoupling of the Fed’s balance sheet and stock prices. That hasn’t been much the case so far, but it doesn’t mean it won’t happen eventually.