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Minyans Take Manhattan

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And the answer is... an inverted yield curve reflects the inversion in housing.

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Festivus.

Indeed, festive was the atmosphere in the 'Ville this past Friday, as Minyans gathered in mid-town Manhattan to rap, rip, and reflect, all while raising money for 'the kids,' via the Ruby Peck Foundation.

Once again, Todd captures the spirit and the soul that makes Minyanville what it is. And, with a ton of help from his posse led by King Kevin Wassong and Queen Vanessa Ohayon, the crew outdid themselves in an over-the-top effort and resultant extravaganza all to honor the truly philanthropic Trent Tucker, with the first (annual) Critter's Choice Award.

The paparazzi was out in full force, as New York sports-legends Patrick Ewing and John Starks of the Knickerbockers were in attendance, along with New York Football Giants great Howard Cross.

But the sports-hero-halo came off, when I walked John Starks over to the Texas Hold-em Poker Tournament tables and got him his chips. With one of my all-time favorite Knicks sitting directly to my right, the tournament began, and Bay Hill Golf Club card champion Bennet Sedacca immediately began to bully the table, taking a big pot from Starks early on.

Naturally, this bullying technique did not work all night, and eventually the field of 14 had been whittled down to just four, including both John and myself. With the blind-bets escalating rapidly and the clock running down, I found myself in the big-blind to Stark's small blind. It was folded to John who just smooth called. I looked down to find K-J offsuit, but checked, knowing the big-stacked Starks would likely call any raise.

The flop came down K-Q-Q, and after some hesitation, Starks, who had in fact bluffed at a couple of pots, bet the minimum, which was almost one-third of my remaining chips. I immediately pushed all-in with two pair, figuring that if Starks did have a Q for trips, he might have slow-played me by checking instead of betting.

But when John instantly said "call" I knew it.

Yep, he held Q-5 offsuit, and thus had flopped trip Queens to beat my two pair and knock me out in fourth place.

Congratulations to John, who went on to win (with the help of my chips).

We will meet again my friend, in Las Vegas on February 17th in the Trent Tucker Celebrity-Pro Poker Tournament, to which I was lucky enough to 'capture' an invite.

The celebs, the macro-mavens, and the Minyans mingled and made merry throughout the evening, into the night, and out onto the dance floor. Watch out folks, I am downright dangerous on the dance floor, with my seven-foot wing-span and range of mobility when swooping and sweeping across the floor... to which Toddo's mom can attest!!!

But earlier in the day serious was the 'buzz' word as some of the most experienced minds on Wall Street gathered to banter and share.

'Lone Wolf' Jeff Macke captivated the crowd with his insights into the current eclectic environment in the equity arena, specifically as it pertains to private equity and the new LBO boom.

'Doctor Phil' Erlanger talked sentiment.

Jeff Bernstein brought intensity and passion, and left it all out on the table for everyone to see, while debating the 'valuation' dynamic as it applies to the US stock market.

Stephanie Pomboy did the same, the woman 'brought it,' and did so with passion and conviction, while eloquently expounding on the macro-global scene and the unfathomable lack of risk aversion to be found within credit markets.

I was honored and humbled to be in the same spotlight.

Did someone say... the beautiful Stephanie Pomboy and the beastly Greg Weldon on stage together, rapping macro???

Indeed, did someone suggest "The Beauty and The Beast Tour?!"

Jeff Saut saturated the crowd with his soft-spoken but powerful message.

Steve Galbraith left no stone unturned.

The second panel went on their own Magical Mystery Macro Tour of global market fundamentals, with a heavy John Succo influence and deep thought process, in terms of assessing an environment devoid of risk aversion and volatility and tilted by the always enlightening and entertaining Bennet Sedacca towards a continuing discussion of the US Yield Curve, and the monetary policy 'conundrum' that causes Fed members to lose sleep.

In fact, during both panel discussions, the inversion in the US yield curve was a point-of-attack that was repeatedly brought front-and-center, which has caused me to extend my own thought process on the topic. With that in mind, I offer some of the text from Tuesday's edition of "Weldon's Money Monitor" (found at weldononline.com) for further contemplation:

"Indeed, amid the clouded-conundrum-confusion, I might offer a thought process that could provide clarity, implying that the inversion in the yield curve reflects two things:

Fist, the fact that the most recent dose of paper-asset-inflation has been driven by private credit creation that has not seen any 'participation' from the Fed. The Fed's own rate of US Treasury accumulation has plunged to a multi-year low, from a record high.

Moreover, amid the push to new highs in credit week after week after week, my firm notes the complete lack of concurrent growth in the monetary base, in deposits, and in currency.

Perhaps the yield curve inversion reflects this divergence, with the understanding that my 'second point' ties it all together meaning, secondly, the inverted yield curve reflects the inverting housing market. Here, increasingly, home owners are getting 'tilted' into an 'upside-down' position, particularly as re-sets intensify, where home price deflation drives the value of the asset below the amount owed on the debt to which that asset represents 'collateral.'

The yield curve inversion reflects the fact that the last 'leg' of asset price reflation was not 'implicitly supported' by Fed monetary policy, which only serves to intensify the risk of an inverted housing dynamic and thus, the risk of a debt disinflation.

To begin 'fixing' things, a la a shift towards rebalancing and narrowing the acute global imbalances in trade, income, labor, wealth, consumption, output, investment, and savings, US household credit needs to contract, and savings needs to rise.

Thus the conundrum; if US household credit begins to actually 'contract' then the risk of an overt debt-deflation intensifies dramatically.

The inverted yield curve implicitly states belief that the Fed will need to pump money back into the system, from a long-term perspective, even if it means doing so in a stealth way, while maintaining shorter-term interest rates on the 'higher' side. They might do this in order to cover the back of the USD depreciation, specifically as it would apply via any resultant inflation-credibility-scrutiny.

For sure, my firm has long stated the Fed cares not about the buck, but only about interest rates, particularly at the long-end.

And, for now, foreign officialdom continues to accumulate the greenback on a regular basis, as is clearly reflected in the latest Custody holdings data and in the individual country-by-country Official FX Reserves data.

The conundrum extends to everyone.

In short, here is Weldon's 'ultimate' definition of the conundrum:

A) To begin fixing global imbalances, US household credit must contract.
B) If US household credit were to contract, it would be a debacle for all.

The inversion in the US Housing market provides a clear and present danger, in terms of turning the conundrum into a reality.

The US Yield Curve reflects this ominous thought process, in our opinion.

The Dollar reflects the fact that the Fed will care more about the risk of debt disinflation, as opposed to rampant price reflation in commodities such as gold and silver, or even energy.

In this case, consider it from the following perspective:

Since, commodities are priced in USD, a decline in the value of the USD against the CNY renders the commodity-buying-power of China's massive reserves subject to the risk of 'disinflation.'

Indeed, this has been the case for some time now, though more so because of a rise in commodity prices, which has directly served to 'flatten' the 'real' growth in official USD Reserves.

In other words, it takes $1 trillion now to buy the same amount of commodities that would have taken $700 billion to purchase just a few years ago.

Thus, the growth in Chinese reserves from $700 bln to $1 trillion in the last year, is not as powerful as it might seem, particularly given the more recent appreciation in the Yuan versus the US Dollar.

Ultimately, this makes more of a case for Chinese purchases of Gold. Gold in Yuan terms has risen, and thus the value of $700 billion held by Chinese officialdom in Gold over the last couple of years would facilitate the purchase of more commodities today than it would have then.

Alas, given that the Chinese cannot possibly, logistically, realistically hold any majority of their reserves in Gold, it makes no sense for them to suggest a sale of US Treasury paper that would only mean an even more intense flooding of the globe with paper dollars from the Fed.

Voila... thanks to what we call the incestuously co-dependent relationships between US household-government USD debt and foreign export-revenue generated 'USD savings,' we have 'perfectly balanced imbalance.'

Harmony for the Holidays?

Hardly!

But still, we must ask ourselves, how is it even possible for us to suggest that US consumers feel anything remotely resembling 'pain' when we can easily evidence that which is right in front of our very own eyes as it relates to the recent release of the Sony (SNE) PlayStation 3 gaming product?

Nightly news brought pictures of fist-fights and trampled buyers, long overnight lines outside of retailers and even stories of gun-toting robbers praying on those willing to wait hours just to purchase a video game player.

Moreover, headlines revealed that a certain percentage of buyers at retail outlets intended to re-sell the players on the Internet for as much as three times the brick-and-mortar price.

Is this an environment of 'depressed' consumer sentiment, where the inversion in the housing market is driving an inversion in the yield curve, one that causes confusion amid a conundrum involving macro-economics and monetary policy?

It would seem not.

It would seem that the consumer is feeling as robust as ever, as if hundreds of billions of dollars in mortgages are not about to 're-set,' and possessing a mind-set that believes home prices will stop deflating before more and more homeowners are 'upside-down.'

Or is this just insanity taken to the whole new level?

Harmony for the Holidays?

Hardly!

It's insanity taken to a whole new level, and symbolic of the erosion in the fiber and character of the average US consumer, who has evolved into more of a spoiled child than a champion of liberty."

So, have a Happy Holiday and enjoy the perfectly-balanced-imbalance...while it lasts.

Thanks Todd, for inviting me to your Festivus. I had a blast!

And the answer is... an inverted yield curve reflects the inversion in housing.
Position in gold
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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