With stories of food riots in third world countries and $4 a gallon gasoline by this summer, inflation certainly seems to be rampaging. Whether this continues or not is not just of concern to market watchers. Aside from the incredible pain food inflation in particular puts on the poor worldwide, domestically US workers are never going to get raises to match inflation rates much in excess of 3%. So, the more necessities like food and gasoline go up in price, the less Americans have to spend on other things, like mortgage payments, health care premiums, or educating their children, let alone retirement savings. In short, the worse inflation stays, the more severe our recession will be.
I addressed this issue previously in a post entitled Why Inflation isn't the problem in which I said:

"During their usual strolls along the main streets of their home towns, our parents and grandparents gazed at the scenery around them and took for granted a spectacular picture that seldom is observed nowadays and that few of us can hope to see during our lifetimes:

One of the speculations I have made from time to time is that the very assumptions underlying neoclassical economic theory are so flawed in comparison with reality that the theory, while elegant, and able to generate wonderfully pretty mathematical graphs, is deeply flawed.

One such problem is that neoclassical economic theory made use of the mathematics of 19th century Newtonian physics. And just as quantum theory and the theory of relativity gave rise to startlingly different results, if one applies 20th century physics to economic theory, the entire notion of equilibrium breaks down, and one sees radically different predicted results.

This may seem like a strange title for an article in a world where gold is over $1000 an ounce and oil is at $110 a barrel, causing people like my buddy bonddad to write articles entltled, "What Inflation?", and this is somewhat a response to his latest post,
Why Isn't the Bond Market Selling Off From Inflation Fears?.

The very best analysis of the issues in our new economic world was recently set forth, imho, by Prof. Bred DeLong, who described 3 types of crises:

This may be a strange title for a "populist" blog, but the behavior of the stock market is a leading indicator for the economy, so there is some value in calling attention to it when it signals something to us. Not to mention that progressives like to make money too.
I'm really impressed with the behavior of the stock market these last couple of days. We've had a slew of bad news, mainly worse than expected, and instead of collapsing, the market has held its own both days, finishing, less than 1% lower as of Tuesday's close.
Not only that, but both days have seen strong rallies in the last hour. That's the sign of a market that wants to go higher, i.e., a bull market.
I know, I just got done posting graphs for a 120 year period and said I distrust short term charts. But when the market behaves in an unexpected way -- going down on good news or up on bad news -- I pay attention. This market wants to go up, even on bad news.