Why is Trying to Prevent Hyperinflation bad for Stocks?

One of the obvious reasons why stocks are on a defnitive path of further decline and making much lower lows is that the stock market can be used effectively as a tool to control hyperinflation at least on a temporary basis.

Simply put, by creating fears in the stock market, investors almost always park their money in US treasuries. We have seen this happening back in late 2008 post Lehman collapse when the yield on 90-day T-bills went to 0%. By scaring people out of the stock market, an artificial boost is created for US treasuries. Such boost can help to keep treasury yield very low on a tempoary basis. However, the current situation with the treasuries needs much more than a temporary help.

At some point, the Federal Reserve will be overstretched in terms of keep buying the debt from the Treasury. Thus, a sustained buying of the treasury needs to come from sources other than the Federal Reserve, the Chinese government and other nations. It needs to come from the retail and institutional people. Thus, perhaps a sustained decline in the stock market would help such effort.

The point here is that the Federal Reserve will try everything possible to prevent hyperinflation. Whether or not they can succeed, their effort will likely result in further declines in the stock market. Thus, be aware.

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