Does the stock market Love inflation?

This is from David Glasner´s post dated August 2:

The sharp decline in Treasuries seems to have been triggered by the downward revision real GDP released by BEA on Friday.  As a result, the decline in Treasuries was reflected almost entirely in a decline in the inflation adjusted yield of TIPS-bonds.  Today, however, if I am reading Bloomberg’s quotations correctly, the yields on conventional Treasuries are dropping faster than the yields on TIPS bonds, as they did yesterday, suggesting that inflation expectations are also declining, perhaps explaining why the stock market decline is accelerating today.  Remember the stock market loves inflation.

All of this is starting to get really scary.  The markets obviously believe that the real economy is deteriorating.  They presumably interpret the recent budget deal as a sign of increasing fiscal tightness, but the news story quoted by Scott suggests that the Fed is not at all inclined to provide any new monetary stimulus to compensate for the loss of federal spending.  The dollar is appreciating against the Euro, providing further evidence that inflation expectations are falling.

I really don’t like what I am seeing out there.  HELP!

And the Picture:

In the 70s there was too much inflation (excessive nominal spending). Bad for stocks. Today we have the opposite: too little nominal spending. Also bad for stocks.

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