Stocks vs Flows

There is a battle going on in the markets. The point of contention is what constitutes a stock and a flow.  When central banks are aggressively on the pedal, the flows get the upper hand. The situation also means everything is up for review whenever the price changes. There is a massive pile of ammo on the "stock" side of the confrontation. The trillions in excess reserves at the Fed are viewed as a stock. (We have some reservations about that- but we give The Bernack the benefit here) Much of the monetary meltdown crowd has failed to recognize that barely a trickle of this cash stock has made it to the economy.

Unlike China, who can shorten monetary lag times on the ground, the US has created financial tinder with no ignition. The futility of the process is fairly obvious. How you reduce this stockpile, and what happens in the process will be the Mother of All confrontations. Someday, Big Ben is going to need the nerves of Jeremy Renner in The Hurt Locker to diffuse this bomb. If not, boom.

For traders, I think the opportunities remain abundant. As Sgt. James said to his son, "I used to love a lot of things, now I love only one."

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