The latest CPI numbers were released showing the year-over-year price inflation for April 2022 was 8.3%.  This was a slight decrease from 8.5% from March, but it was higher than expected.

The CPI for the month of April was up 0.3%.  If you strip out food and energy, it was up 0.6% for the month.

The median CPI, which tends to be less volatile, went up 0.5% for the month.  The year-over-year median CPI stands at 5.2%, which is up from 4.9% in March.

So the numbers are all over the place, but there is no question that the higher price inflation is taking a toll on American families.

Stock investors seemed to shrug off the news at first.  The report was released on Wednesday morning at 8:30 AM.  Stocks were up in the morning trading, but reversed in the afternoon.

The Nasdaq closed down over 3%, while Bitcoin fell below the $30,000 mark.

The stock bubble was built on easy money and low interest rates courtesy of the Federal Reserve.  Now the Fed is essentially forced to deal with the inflation problem that it created by hiking its target rate.  If it stays on track, the Fed is supposed to start reducing its balance sheet in June.  This is not positive news for the stock bulls.

It’s important to remember that a major downturn in stocks doesn’t have to coincide exactly with a recession.  In 2008, stocks tumbled the worst when the financial crisis became apparent in September 2008.  It was later determined that the recession actually started in late 2007.

The peak of the Nasdaq during the original tech bubble was in March 2000.  The recession officially hit in 2001.  The Nasdaq bottomed out in 2002.  While there were some big down days, it was a roller coaster.  The bear market lasted for nearly three years.

In context with today, the lesson is that the Nasdaq started falling before the recession hit in 2001.  We could be experiencing something similar today.

Also for context, the Nasdaq hit just over 5,000 at the peak of the original tech bubble.  It fell to below 1,200 over the course of about 2 and a half years.  It was about a 78% drop.

The Nasdaq now stands just above 11,300.  It had been over 16,000 at one point in late 2021.

While the bubble seems to be popping, this could just be the start of it.  The Nasdaq could easily fall by another 50% or more.  This will probably be the case because the Fed cannot easily revert to more money creation this time.

It technically can go back to easy money and lower interest rates, but then they risk losing the dollar.  They risk turning us into a third-world banana republic, which sometimes seems to be the goal of the Biden administration.

I really don’t think Fed officials want hyperinflation.  They would be destroying themselves and their own power.  They would also be destroying their pensions.

I think it is smart to plan for a long bear market.  If the Fed reverses course at some point, we can reconsider.