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Minyan Mailbag: The 'Show Me' Argument


There are times that I am bullish for the short-term and times when I am cautious (now) and times when I am outright bearish.

Prof. Sedacca,

Good day, hope this finds you well.

I've followed your commentary for a while now, though from outside the fence of the 'Ville (not enough time), and I find myself allocating capital from a similar economic/financial worldview. I whittle this note not in any disagreement with your logic, but rather as an add-on to the missive you penned yesterday containing the charts on M3 from 1985.

I need not bother you with the background of the debate, that being whether or not those charts matter. I, like you, believe they do, and though not immediately actionable, I find such intellectual constructs seem to underline my longer term view as it pertains to the placing of capital. And I, like you I imagine, often find myself in a debate about the significance of such things as opposed to things like productivity, the asset side of the balance sheet, and "dynamism" and its cousin "resilience" whatever they may be.

I no longer attempt to talk about the fluctuation in price that can have significant effects to the asset side of this argument (both up and down, since '82 mostly up, sans TMT bursting, and the last 5 weeks). Rather, I now use the "show me" argument. This argument mainly being underpinned by the foundation of "show me" a robust economic expansion that drives asset prices higher without a concurrent relative declining cost of capital, rapidly expanding credit and a supply of money. In fact, of late, I've been one to say that if Bernanke himself really believes in the speeches he gives, we may find out what horse is the winner. Not that Gentle Ben has to tighten into infinity. Quite the contrary. I'd really like to see him...just..stand..pat, for an extended while. Or more plainly spoken, if our economy is really based on rapid productivity growth, is dynamic and resilient and is not overtly reliant on rising asset prices and ever greater leverage, then surely it shall be able to function like a charm in a period in which the cost of capital rises, and then just stays, not falling rapidly at the first hint of economic weakness.

Would this not be the reasonable outcome for an economic and financial system mainly underpinned by productivity, dynamism and resiliency? Or, Show Me the goodies without the ever expanding leverage. Framed as such, I find the response particularly interesting. Tis' quite a comment amidst all the talk and worry about the Fed. As such talk can, without jumping too far, be reduced to talk about the ability to lever ever more.

Please, keep the charts coming, they are ever confirming.

Minyan Ryan

Minyan Ryan,

My issues are not with Bernanke. They are with Greenspan. I am not a bearish person by nature, actually quite the opposite. But facts are facts. Your well-penned comment is correct. But I think the mess (confirmed by those charts and 100 others I could show you) are damning to the point that it MAKES me cautious, not a perma-bear. There are times that I am bullish for the short-term and times when I am cautious (now) and times when I am outright bearish. To me and my clients, capital preservation is key. So I can't ignore what I 'see,' which is the debt bubble that Elmer created. I don't like it for me, or for my kids. I think it also caused a two-classed system in America that will eventually (who knows when?) end badly.

Finally, the 'Maestro,' as they called Greenspan, will eventually become a villian in the history books if I am correct. We need to go back to 'social Darwinism' and let the business cycle resume, even if it causes a hard landing for a year or two. Get us back to where we 'should be.' As for productivity gains, I find them to have peaked along with profit margins, which is MY bear story on stocks. I hope this finds you well and keep the questions rolling.

Best regards,
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