The Historical Stakes of Government's Grand Experiment

The Hump has arrived -- Hump? What Hump? -- as we reach the midpoint of our trading week. With my weekly syndicated scribe already taking a look at The Main Event: Inflation vs. Deflation, I wanted to get physically random with some thoughts as we find our way through this freaky fray.

Before we do, I wanted to add another layer to our 'flation debation, this one from one of the smarter cookies in the 'Ville and one that the Old School knows quite well. And I quote:

"Like everything else, our fate depends on what government decides to do. If they don't monetize enough, treasury rates in the US won't explode up. There isn't enough demand internally (as investors reduce risk) to offset lower external demand from lower trade. In this scenario deflation is dominant and US stocks go down, the dollar goes up, and the economy slips into depression.

If they monetize too much, treasury rates could explode higher. Internal demand will evaporate -- as will external demand -- as everyone tries to get out of the dollar at the same time. In this scenario, we get hyper-inflation and US stocks could explode up, the dollar goes down a lot and what will be left is a dysfunctional economy where deflation will soon ensue down the road.

I personally don't think they can get it just right; there is too much debt that is dramatically affecting the velocity of money, which as you say is paramount in a finance-based economy. Gun to head, I favor scenario one for a while, then scenario two."

Much obliged, now back to our regularly scheduled Random Thoughts:

• Ancient Chinese Stinker? Chinese regulators told banks to stress test for a 60% drop in home prices. While this is a "worst case" scenario, I can't help think of that line in Crimson Tide, you know, that line about not putting on a…
  
  
• It's funny (not like a clown) that prestigious blokes across the pond expect rates to ratchet higher quicker than most expect.
  
  
• I had the same thought in the shower this morning (not in an American Beauty sorta way). I tend to question conventional wisdom and the oh-by-the-way assumption in this morning's missive regarding the "the foreseeable future" of low interest rates caught my mind's eye.
  
  
• How do pharmacists fit the pill bottles in the typewriter?
  
  
• Social unrest? What social unrest?
  
  
• Does it mean anything that while the S&P (short-term) reverse dandruff "works" to S&P 1130, the right shoulder of the bigger picture S&P dandruff that works to S&P 860 would still be in tact?
  
  
• Some trading observations? (This is the sorta stuff we update in real-time on the Buzz, so you know):
  
  
  • NYSE internals are hanging tough at 2:1.
    
    
  • The banks remain below the technically significant BKX 50.
    
    
  • The VXO is barely legal (and threatening to sing a Petty tune -- watch this, if it breaks down, it infers higher equity levels).
    
    
  • Big beta was trading generally constructive this morning with the exception of Research in Motion (RIMM) (ريÙ... لا لك!) but Apple (AAPL) flipped the crimson switch shortly thereafter.
    
    
  • The semis traded soft from the word go, which typically means stealth supply when that occurs in an otherwise green field.
    
    
• How much money would we have made if we sold BKX 50 straddles each of the last three expirations?
  
  
• And how much sleep would we have gotten?
  
  
• If you haven't taken your free 14 day trial to our subscriptions you should check them out and see what fits you best.
  
  
• Across the pond, the needle continues to point in an unfortunate direction.
  
  
• My 10-year old nephew Bradley is heading to the big city this weekend. While he's an O's fan, I'm gonna take the lad to the Yanks-Sox game for his first sniff at the new Stadium. Color me jazzed for an afternoon of male bonding.
  
  
• Question: How much does John Q Public "matter" in the Computers Gone Wild marketplace? I still think "a fair amount." If financial fatigue truly manifests, it will dampen supply (at best) or bottleneck the exit (at worst).
  
  
• Is this summer -- nay, year -- going by really quickly or is it just me?
  
  
• How do I set up a pairs long this and short this?
  
  
• Saving in a bull market is bullish; saving in a bear market is bearish.
  
  
• Should we watch the homebuilders -- Lennar (LEN), Toll Brothers (TOL), Pulte (PHM) -- as a broader double dip tell?
  
  
• Is it really a double dip or one big dip with a huge hiccup in the middle?
  
  
• Jack Johnson ain't too shabby... if you like that sorta stuff.
  
  
• Is it football season yet?
  
  
• Does anyone else feel like they are winning The War on Capitalism?
  
  
• Do you think every weekend -- and the week of Labor Day -- is enough time to finish the book version of Mems by November?
  
  
• Have we become beholden to our smartphones?
  
  
• While we can infer an agenda, what will be the ramifications of China's increased presence in the global gold market?
  
  
• What does it mean that "Crash" has been particularly frisky of late?
  
  
• And so it begins; Hungary lays blame for the financial crisis on it's Central Bank.
  
  
• Remember the Mother Morgan (MS) acne above $26? The next level of resistance resides at $28, for those following at home.
  
  
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• What's a better Neil tune, this or this?
  
  
• Deep breath Minyans, we're more than halfway to the weekend!

R.P.