Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Monday Morning Minyan Mailbags


It is our belief that given the option, bureaucrats will opt for inflation (stagflation) over deflation.


Hi Toddo,

I read your Nov 15, 2006 article where you discussed the possibility of lurking stagflation. While stagflation might occur (gosh, I remember the 1970's really well), I'm beginning to wonder if deflation is now on the horizon. There are early signs of it in the housing market, the last two months of PPI data and retail price wars. While it is still too early to tell for sure, one glaring fact remains: every major deflationary depression since 1830 was set off by a deflation of excess credit. Let's hope that this never occurs. Unfortunately, I'm one of those "contrarians" out there that is of the opinion that the car looks good on the outside but the engine is leaking oil and everyone seems to think the leak will just go away.

Minyan Michael, San Jose, CA

Minyan Mike,

You're point is something we actively debate behind the scenes at MVHQ. I view the current dew through a lens that may be admittedly myopic. If the powers that be "reflate," as the FOMC has done since in the back of the bubble (despite what 'higher rates" would imply), asset classes-including commodities, or input prices-will pave the way towards stagflation. If they "deflate," or let the markets trade where they otherwise would, the dollar could rally as a collective pfffft! forces folks to pay back debt (in greenbacks).

I think that this, in a nutshell, sums up the true conundrum facing the FOMC and, by extension, the global central banks. It is our belief that given the option, bureaucrats will opt for inflation (stagflation) over deflation. The former hurts but the latter hits the rich, who comprise the lion's share of campaign financing and lobbyists.


You said: "There is a word for coincident inflation in things we need-healthcare, energy and education-and deflation in things we want; be it plasmas, cell phones or laptops. It's called stagflation."

Why is this not obvious? These are the areas of the economy that are most under the influence of the federal government - the same federal government that (de facto) controls the printing press of our currency. In my view, there's been a simple theme that has developed: inflation in anything under the direct influence (standards, mandates, etc.) of the federal government and deflation in private goods/services (federal spending patterns are "crowding out" private discretionary spending). This shift was met initially by credit cards, home equity lines, longer credit terms, etc. but seems to be running into the proverbial wall. This would seem to account for the deflationary forces being exerted in the private arena while we watch the ever-present inflationary forces in the governmental arena continue to march forward. Thoughts?

Thanks for the 'Ville,
Minyan Z


You make some strong points but I would be wary of trying to game the aforementioned proverbial wall. The "elasticity of debt" has stretched more than a Bikram Yoga retreat and it's always tough to game a cusp. Further, I once wrote that if Wall Street has proven anything, it's an ability to re-invent risk. I believe the same can be said for the global central banks and the powers that be.

Case in point, the current trend of Wall Street firms to absorb hedge funds into their product mix. That'll allow even more leverage into the system, prolonging what I believe is the inevitable comeuppance of traditional risk metrics. We, as a country, "owe" more than $3.50 for every dollar "earned," and while there's nothing to say that debt load can't stretch, we're already a long way from normalcy.


You once brought up an apathy scenario when an absolute bottom could possibly occur. Post this "1999 year end" melt up/squeeze...will we get there? Or has the casino been pumping oxygen into our veins again (but this time with so many doubters/haters that this makes 1999-March 2000 look like a rounding error)?

Minyan Tony


I've always believed that the opposite of love isn't hate, it is apathy. And yes, at first glance, a single digit VXO (volatility) would suggest that we're a long way from love. When I offered that thought, however, I was thinking of an early '70's style apathy, when mentioning that you were in the financial markets would have left you alone at a cocktail party.

It's clear to me, particularly after traveling through 10 cities in the last two weeks, that real estate is the new in terms of bravado and Movado's. The stock market isn't at levels of apathy associated with a bottom, if for no other reason than we're seeing signs and signals that would suggest we're closer to a top. Finally, from a structural basis, I would offer that the litany of liquidity is responsible for the uber-low levels of volatility. It's sorta like trying to buy a lot of a very thin stock…only in reverse.


I would never call your credibility into question and I want to thank you for the link to the Sprott Asset Management Article. I don't think you can get the type and the depth of information anywhere else on the net so keep up the awesome work. I have no doubt that manipulation occurs and it has since the dawn of the markets. Why? Because too much money at risk for it not to occur.

I know you have been quick to point out the structural problems and the massive mortgage resets about to take place. My assumption is that this party does not have to end, because of creative financing (this week alone I have gotten three requests for re-financing and one will give me a fixed rate of 2.5% for 5 years). As a side note, I bought my house in 2001 and still have the original 30 year fixed loan on it. My question is, and maybe you can shed some light on the subject, what happens if, when you go to refinance your house, it is appraised at less than your loan amount? By my estimates houses are selling at January 2005 levels and if you bought or took cash out after January 2005 your house has a good chance of being underwater.

Thanks for all your help.
Minyan Brent


I'm not the MV Real Estate expert but I'm quite sure that Professor Zucchi will tee this up for you. What I will say, to your first point, is that the only difference between intervention and manipulation is communication. To that end, I will forever believe that there is plenty of information that is not communicated to the investment public in a forthright manner.

Is that a conspiracy? Unfortunately, I believe it is a newfound reality. The good news, from a dissemination standpoint, is that the once clubby media oligopoly has been "fragmented" as a function of technology. So, while there's a lot of noise and nonsense on the web, there is also more information available than anytime in the history of mankind. So we've got that going for us.

And Finally…

We're T-minus 11 days away from the first annual Minyans in Manhattan-Critters Choice Awards. Think about this, Minyans-in the afternoon, from 1:00-5:00 EST, we'll feature financial foresight from Steve Galbraith (former Chief US Strategist at Morgan Stanley), Jeff Saut (Chief Investment Strategist at Raymond James), Jonathan Golub (US Equity Strategist JP Morgan), Michael Santoli (Sr. Editor, Barron's), Todd Harrison (that's me), Jeff Bernstein (founding partner, Keel Capital), Jeff Macke (Fast Money maven), Stephanie Pomboy (President, MacroMavens), Bennet Sedacca (President, Atlantic Advisors), Steve Shobin (Vice-Chairman, Americap Advisors), John Succo (Partner, Vicis Capital), Greg Weldon (Founder, Weldon Financial) and Phil Erlanger (President, Phil Erlanger Research).

That night, from 6:30-10:30 EST, we'll be rolling up our sleeves for a Festivus of the First order at Country Restaurant, which was tabbed by Esquire as one of the hottest spots in the USA, to honor Trent Tucker for his work with children. A number of his former teammates, including Patrick Ewing, Charles Oakley and John Starks, along with other notables such as Michael Strahan, Howard Cross and Emmanuelle Chriqui (Sloane from Entourage) have already RSVP'd so this promises to be quite a party. Besides, as 100% of the net proceeds will benefit the Ruby Peck Foundation for Children's Education, how bad can it be?

Please Click Here for more information and join us as we celebrate the best of 2006 and together turn the corner towards 2007!


< Previous
  • 1
Next >
No positions in stocks mentioned.
Featured Videos