So, the Fed chief makes a trip to Capitol Hill and warns Congress of the following:

  • Economic growth is slowing and will be less than predicted.
  • Inflation is a big worry. In fact, it's the Fed's primary worry.

Though you'd never hear him utter the word (and all of them are here), it sure sounds like Helicopter Ben is warning us about the possibility for stagflation, something I've been worried about for more than a little while. The evidence is all around. Commodity prices, especially oil, continue to zoom, so that real inflation -- not the fairy-tale, "non-core" number reported by the press -- is very much alive. And it's already stinging retailers, at least according to leaders like Wal-Mart (NASDAQ:WMT).

The biggest question on my mind is, where's Wall Street's head?

Forget the economic news. Averages are hitting new records, with spending-sensitive stocks like Boeing (NYSE:BA), Diana Shipping (NYSE:DSX), Schnitzer Steel (NASDAQ:SCHN), and Western Digital (NYSE:WDC) among the dozens sitting near 52-week highs.

In other words, stocks are going great guns while two primary determinants of intrinsic value should be knocking prices back. When risk-free rates go up and earnings look to get squeezed, it should be downtime.

That the trend is opposite suggests something strange is afoot. I suspect cheap money. Is there really that much "liquidity" looking for a place to flow? Bernanke's remarks would seem to indicate he also believes that's the case. He noted that though the housing market is a drag, credit spreads remain below the historical norm, and financing is "brisk." In other words, there's still plenty of bargain moola to be had. And it's got to go somewhere, right?

If that's the case -- and I believe it is -- stocks may just continue to run for quite a while. But make no mistake, they won't be rising in price because they're worth more, they'll just be sponging up the excess. And they can just as easily, and quickly, get wrung out. Invest accordingly.

Comments? Bring them here.

At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Wal-Mart is a Motley Fool Inside Value recommendation. Fool rules are here.