With the possibility of inflation finally on many investor radar screens
and certainly in the context of the current era of quantitative easing,
looking at the current equity rally in terms of inflation is an
important perspective in determining what was real and what was
inflation induced. At 900 in the S&P 500, we’ve seen a 35% nominal rally off the intraday low of 666 on March 6th. Using the CRB index to measure commodity inflation, the REAL return, from that date, has been just 11.5% as on March 6th the S&P 500 bought 3.23x the CRB index and today it can buy 3.6x. There is no question that the economy has gotten less worse and considering the dramatic market declines year end ’08 thru March, a sharp rally was to be expected but the Fed’s money printing (among other central banks) is also helping to give the impression of health.
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