Minyan Mailbag: A Tiny Taste of Deflation?

Prof Succo,

Unless I am totally "off" (well not the first time...)have these last few days been giving the markets a tiny (very tiny) taste of deflation?

It is not a pretty site...If this statement is "somewhat" accurate, do you think the Fed Heads know it? They keep jabbering (Prof Reamer's post was particularly "classic" to me...) and more blah blah blah keep coming out of their mouths but as you, Marc Faber and Prof. Sedacca (this am) keep re-iterating is they "must print" and the dollar and Inflation (oh sorry there isn't any I forgot..)be damned???

How the market hangs on to every word out of these guys is simply mind-boggling to me...well perhaps Heli-Ben will come to the rescue this afternoon...

Thank You,
Minyan Steve

Minyan Steve,

I have some "advice" for everyone about the Fed: just don't listen.

Eventually markets won't care about what they "say." The markets only care about liquidity and the Fed is rapidly losing the ability to affect it.

The Fed can really only do two things: change margin requirements at banks and make credit available. The first is in reality zero, so that power is gone. The second, as you say, they can print as much money as they want, but it doesn't mean the market has to take it.

Look at liquidity as having two components: supply and demand. The Fed can supply as much money as they want, but if there is no demand for it that supply does no good. We have seen this "excess" supply going into risky assets as of late because prudent users of credit are balking while aggressive users (margin stock buyers, home speculators) are still taking it. We are now seeing even the second tier balking.

-Prof. Succo