Posted by
john on Tuesday, December 09, 2008 12:51:16 AM
Okay, you figured out that I was watching Fast Money today. And what a day it was in the world of money. First, there is the continuing saga of the Detroit Three bailout. Then, there's the Obamalama's weekend pronouncement on fiscal stimulus. So here is Dennis Gartman's take: "Obama is not going to pay any attention to the deficit, nor should he." Mr. Gartman thinks inflation is definitely an issue for the future. In this regard, he points to the very important facts that (a) as of now, the Fed is not monetizing debt; and (b) velocity is non-existent. Conclusion: "you want to own things that, if you drop 'em on your foot, they hurt."
I think Mr. Gartman is largely correct, however I'm not as optimistic as he is. In principle, I am not strongly against the idea of deficit-financed stimulus (though I'm very concerned that piling deficits upon deficits in a very inefficient manner, as is almost certainly going to happen, smacks of stagflation down the road). Further, it's nice that the Fed has not yet had to "monetize" (purchase government bonds in the open market as a means of pumping cash into the economy), but it would, franky, be a miracle if this happy circumstance lasted forever (note that with short-term bills paying essentially zero, and the 10-year at 2.74, somebody is monetizing for them... for now.)
Velocity non-existent? I'm going to assume this is true, because it sure looks like it. This is an argument for stimulus of all sorts. Sadly, we are likely going to get all sorts of inefficiently-applied stimulus on the demand side, and not a word about stimulus on the supply side (which would be where the velocity issue could be best addressed).
Bottom line: I think Mr. Gartman puts a seasoned, reasoned voice to the optimism we're now seeing on the Street. I want to emphasize, I don't by any means think there is no prospect for a sizeable bounce in both GDP and the stock markets; my concern is for what happens when people like Mr. Gartman decide that inflation has become an issue for the present. It's going to happen, and I don't mean in 10 years. But for now, I think you have to pay careful attention to his "hurts the foot" thesis.