Inflation Eventually Outruns the Gains

This kind of inflationary environment is good for stocks, but in the long way it�s terrible for stocks. Inflation destroys capital formation. The stock market is all about capital formation, earning profits, expanding your company, coming up with new companies, capital formation, capital expansion, growth in earnings, growth in multiples.
That�s what the stock market is about. Now initially, you have what�s called money illusions. So, a lot of money floods into the system, it chases assets, it could be housing, it could be a lot of things.
Stocks are part of it. No doubt the stocks have benefited the last four years from the Fed monetary ease. Well, if you have more ease, the stock market should go higher. Initially, but eventually the inflation outruns the gains and it turns out the gains are illusory.
It�s not real and then the capital formation dries up, taxation goes up and the stock market crashes. It�s exactly what happened in the 1970s. We had a very severe, serious stock market crash in 1974 and then the stock market never achieved those highs again until sometime in the mid-1980s. So you had a very long period of no growth in the stocks after a severe crash, and we�ll have something similar.

- Jim Rickards via Future Money Trends:

http://futuremoneytrends.com/blog/?p=10062