I am well aware that anecdotal evidence is, in itself, not proof. Unless that evidence is organized, controlled and well defined, simple isolated examples prove nothing. On the other hand, as I am offering this argument against an administration that thinks it can quantify "jobs saved or created" ("Heads I Win, Tails I Win..."), I will allow myself a little leeway.

You see, having watched my portfolio more closely than usual the past few days, I have noticed something. Or a few things.

First, there is no clear sign of economic recovery. The Dow overall is showing no upward trend. It did for a time, which I mentioned at the time ("Interesting Correlation"), but seemed largely tied to anticipation that the administration would be unable to force through any additional spending or "reforms". But it seems that slight bump has passed, there is just no overall upward momentum, and certainly none in the areas one would expect to feel government spending most strongly, such as defense contractors or construction-related firms.

Second, as I expected in my post "Overlooking the Obvious", we have not recovered enough to be feeling the impact of hyperinflation yet. During hyperinflation, or rather in the period immediately preceding hyperinflation, stocks would be showing the overheated behavior we saw in the dot com boom, rising tens, even hundreds of times without any rationale. (Anyone recall VA Linux?) We have yet to see that sudden skyrocketing, so we are not yet treading the hyperinflationary path, though I am fairly certain, at some point we will, barring sudden dramatic changes.

Which brings me to the reason I posted this article, what I HAVE seen, and what anyone who has stocks and follows their daily fluctuations must have noticed as well. That is that, for a sluggish economy, the market numbers don't fit. Facing declining sales, sluggish housing starts, and an overall anemic, even declining economy, the market should be flat, maybe declining, but in many sectors it is just not behaving as expected. Oh, on average it is flat, but those averages hide rather dramatic fluctuations. In the past few days, I have seen my portfolio as a whole rise and fall almost 2% in a day, with individual stocks jumping even more. But for the lack of any upward trend, the volatility in many segments of the economy is reminiscent of the wild days of the late 90's.

So, what is happening?

To answer that I may need to revise one early statement. We are not yet in hyperinflation, but we may be in the very opening phases. I know I said we do not yet see the overall boom in stocks, and wild speculation that characterizes the period where capital is paid out mistakenly as profits ( "Inflation and Uncertainty"), but I may have spoken too soon. We might not yet be firmly entrenched in the speculative excesses of that phase, but there are signs it is coming. Of course, with a simultaneous economic slump, many of those signs are muted. Rather than the wildly rising market of the 90's, we are seeing a flat market with massive fluctuations, or at least the beginnings of such a market. But, as the other economic factors are continuing to exert a downward pressure on prices, we are likely to see, not another dot com boom, or even another housing bubble, but instead see something akin to the "stagflation" of the Carter era, a period of low growth and rising prices, with a stock market, largely flat, or even declining, but with massive and unpredictable fluctuations.

Of course, being based on such a short period of observations, it is possible I am ascribing too much to a few days of fluctuation. Especially as I have been anticipating the inflationary consequences of the massive Bush and Obama spending sprees. ("Place Blame Fairly, Regardless of Party") On the other hand, what I have seen does fit quite well precisely what I have been anticipating, so it is possible that I am right to be concerned.

Only time will tell, I suppose. But I would not be surprised if "stagflation" or some modern verbiage meaning the same thing, makes a reappearance in the news before December.

POSTSCRIPT

Oddly, while writing this, I saw a news story over an "unexpected" drop in retail sales numbers. Amusingly, the government is also apparently arguing "inflation" is at an "all time low". As the government measures inflation using the CPI, and since sales are down, of course this is true. However, looking at the overall economy, including capital markets, it does appear that we are experiencing inflationary effects, they are simply being counterbalanced by sluggish consumer activity. Unfortunately, as the government often believes their own numbers, this likely means they will be less concerned about the harm of printing new money, so we are not likely to dodge the hyperinflationary bullet, at least not so long as the government believe their spending is not causing "inflation". (Though by definition any deficit financed by open market operations will of necessity cause inflation. In fact, it IS inflation, inflation being an increase in the money supply, not the price rise which is the usual consequence.)