I’ve been doing a number of interviews recently, and the one thing everyone wants to talk about is the new records being set by the market. With the S&P 500 touching 1,800 and the Dow touching 16,000, the question is whether this is the start of another upward run or whether it marks the peak.

There’s something about round numbers that gets people going. The end of the world in 2000, the hype over Dow 10,000 (both ways), and the repeated questions at every 1,000 mark suggest that somehow this number is different.

We talked yesterday about how consumer price inflation has been pretty moderate, and why that is. To recap: The speed at which money circulates has declined, even as the Fed forces bank reserves into the financial system, meaning that when the economy recovers, when the banking system gets its mojo back, and when lending starts to take off again, we can expect inflation to accelerate—potentially very much so.

A point worth mentioning here is that the Fed does have tools it can deploy to help limit inflation. And although the Fed has said it will wait to do so, inflation is actually a problem we know how to solve. This is something to watch, therefore, but shouldn’t become a long-term systemic problem.

Yesterday, we talked about how the money supply has not expanded unduly, given the level of economic growth. We also looked at credit growth and found that it too was running at or below the levels expected, considering the level of economic growth. There appears to be no sign of the Federal Reserve’s stimulus in these measures.

Does that mean we’re off the hook on inflation? The short answer is no, and the reason is interesting. First, though, a bit of background.

Yesterday, we talked about the two fundamental requirements of money: scarcity and exchangeability. Today, we’ll focus on how those elements work in the current monetary system.

Money today is almost exclusively fiat currency, with no underlying assets behind it. Dollars, euros, pounds, and the yuan/renminbi all have value because their governments say so. “Money” that has no governmental backing, such as gold or bitcoins, is a fringe player right now.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” — Mark Twain

What is money?

At first blush, the question either sounds pretty obvious or like a Zen koan. I think it’s worth asking, though, for the same reasons it was worth asking “What is a house worth?” in 2007. Although everyone thought they knew all about the real estate market, it turned out we didn’t. In the same vein, I think there’s a real benefit to taking a deeper look at exactly what money is, and has to be, to determine if what we think we know about it (and about current economic conditions) actually makes sense.

That headline should give you a hint about the contents of this post. Now that we’re well into earnings season, I thought I’d take a look at how we’re doing and what that might mean going forward.

First, a bit of context. Earnings estimates, being estimates, change over time—usually downward. Dr. Ed Yardeni, a terrific economist and market analyst, regularly presents charts like the one below on his blog. You can find the original here.)

One of the stories in today’s Wall Street Journal describes how a number of U.S. cities are coming to terms with their inability to pay their obligations. Earlier articles in the WSJ and elsewhere gave some details—specifically, in years when investments did better than expected, many cities took the excess returns to add to payments, making the cookie jar smaller when the inevitable underperforming years came. They had confused the short term with the long term.

I get the same kind of question, in a different form, when I speak with investors. Should we invest in the stock market? Well, I say, what is your time frame? Over the long term, you absolutely have to invest in the market. Over the short term, you might be best off not doing so. Is this a one-time investment or a continuing stream of investments? How old are you? And so on.

This morning, I had the chance to talk with the lead fixed income (bond) portfolio manager from one of the largest Chinese mutual fund companies. Arranging the call was a bit difficult, what with the difference in time zones and our travel schedules (which is probably a metaphor for something or other), but the conversation turned out to be well worth the effort. As an aside, we really do live in a miraculous age, where you can talk to someone on the other side of the planet.

While rushing between planes yesterday, I had a good conversation with one of our advisors, who was preparing a talk for his clients about whether the recovery is real. Specifically, he was concerned about the fact that money velocity is so low.

First of all, thank you to everyone who wrote nice things about my appearance on CNBC yesterday—much appreciated. It’s fun to do that kind of appearance because you never know exactly what will be discussed, and you have to prepare. Keeps me on my toes!

This will be a short post because I’m in New York attending a conference on ETFs put on by iShares. ETFs, for those who haven’t run into them, are exchange-traded funds—that is, a portfolio of assets (stocks, bonds, what have you) that is traded like a single share of stock. They are similar to a mutual fund that tracks a specific stock or bond index, such as the Barclays Capital 1-3 Year Treasury Index. ETFs trade on one of the major stock markets and can be bought and sold throughout the trading day, like a stock, at the current market price. And, like stock investing, ETF investing involves principal risk—the chance that you won’t get all the money back that you originally invested—market risk, underlying securities risk, and secondary market price. ETFs have become a major part of the investing landscape over the past several years, changing the way many people and institutions invest.