Okay, chart crimes aside... this will be a long one, but I want to lay out my POV. I'll start with the money supply, then move to 8% inflation.
First, regarding the 'shape of the curve', it's easier to get a high r^2 when you compare two "total volume" datasets that both go up. Something that would be more compelling to me would be to see that % increases period to period correlate in any way between S&P performance and monetary supply increases. Here's that chart for
US M2 vs. S&P 500:
View attachment 532543
You can draw a generally positive horizontal line through both of those, but there's no meaningful relationship even by lagging/leading the data.
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I think we agree that inflation is priced into the S&P 500, but what I disagree with is the assertion that the totality of market gains represent solely inflation. Practically, I'd offer the proof that companies grow not just through price, but through quantity (of customers, of units sold, etc.). We can see this in any earnings report.
8% annual inflation is a
staggering number. It's something like a 4.5x price increase in 20 years. I'm not one for anecdotal evidence, but look around at the stuff you purchase now vs. 2004. Do you see that 4.5x?
If you think BLS produces garbage price data at the survey level, then nothing I say after this will convince you otherwise. I will say that pretty much everyone, even the people estimating very high inflation, use that data, so let's assume you're willing to trust the raw data but you distrust the CPI calculation.
BLS publishes R-CPI-U-RS, which calculates historical Urban CPI (93% of pop) using modern methodology. We can compare that to the historical CPI-U to get an understanding of how much modern methodology changes are influencing CPI. All this data comes directly from BLS--I calculated it by taking YoY of average CPI annually:
View attachment 532624
At worst it's a 2% methodology difference in 1979 and 1980, with that gap quickly shrinking to insignificant in subsequent years.
Now let me tell you my understanding of what some crazy person did to get to
8% annual inflation <-- this is wrong, and I'll explain why.
First, they looked at this timeframe in red:
View attachment 532625
Then, they took the sum of all the annual YoY % differences between YoY R-CPU-U-RS and YoY CPI-U (red line minus blue line) across that 1981 - 2011 (31 year) span, which totaled 5.1%. Finally, they said, that's the cumulative gap that reflects the full impact of reverse engineering the methodology changes, so we need to add 5.1% plus some additional smaller fudge factor to the reported YoY CPI every year to get the true YoY CPI.
You can see the issue. That 5.1% change comes from 31 years of adding together the same very small actual methodology change--you can't then apply that total to EVERY FOLLOWING YEAR and say 3% + 5% = 8%. Even if you agreed with the concept, the annual adjustment would be closer to 5.1%/31 = 0.16% per year, which is relatively inconsequential.
Claiming that the change in each year is somehow "cumulative" is a gross mathematical error. It seems insane that a human could publish that and then stand by it. Yet, that's exactly
what this Williams person did. You can see the table around the middle of their paper--to their credit and the credit of the BLS, I was able to perfectly recreate their numbers over 10 years later. But their methodology is, in my view and the view of many others, dead wrong for the reasons I described above.
Ultimately, you can be the judge. Maybe you're referring to something else, but that's what I am familiar with. I don't believe there is a real long-term inflation of 8% and I do believe that owning 'assets' protects against what inflation there is.
