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1. Comment on Stagflation
By Howard Simons
9:09 a.m. EST
A RealMoney reader asked:
You recently had a post in Columnist Conversation stating that you didn't think that stagflation was a problem to be concerned about. Could you expand on your comments? Thanks.
Labor productivity is unlikely to grow more slowly as 1) each worker has a greater allotment of capital and technology and 2) we are importing cheaper labor content. The increased globalization of the non-blue collar labor market is preventing labor from claiming a greater share of its productivity (sounds Marxist, doesn't it?). These will combine to continue increasing the quantity of goods and services consumed for a given unit of American labor in the production process.
Second, inflation cannot ensue until the banking system starts to convert excess reserves into credit. This failure to-date has allowed the Federal Reserve to keep pumping reserves out without generating price inflation; asset levels remain affected. Ultimately price inflation will follow, but it can follow at a high growth rate. If the policy response is to simply raise rates without reducing the quantity of reserves, higher interest rates will be ineffective at stemming inflation. The so-called "exit strategy" will have to involve both tactics.
As far as the tax issue, we can be certain of higher taxes both on an average and on a marginal level. This will be a fiscal drag, but it will not be inflationary.
By Timothy Collins
10:01 a.m. EST
Added a bit more to my January 14 puts in UAL Corp. (UAUA) . Oil prices are moving right back up, and I see no reason the airlines should be rallying along with it. This is one of those few industries where the cycle seems to be small profit, big losses, bankruptcy, consolidation, rinse, repeat, more bankruptcies...
3. 10 Years of VIX
By Gary Morrow
11:34 a.m. EST
As the VIX/CBOE Volatility Index dips back down into the teens, it's worthwhile to take a look a longer-term chart. Below is the weekly chart of the VIX covering the last 10 years.
The upper teens has certainly been a major level for the index.
4. Re: AMZN
By Ken Shreve
2:21 p.m. EST
Increased volume really is the key as to whether large-cap tech (like Amazon (AMZN) - Get Report will continue to work in early 2010. It's hard to get too excited about recent price strength in large-cap tech in this low-volume environment. Baidu (BIDU) - Get Report is up nearly 4% today, but it's the same old low-volume story.
Apple (AAPL) - Get Report is basing nicely, but it needs volume to take it higher. Hopefully, we see some new institutional money come into the leaders in early 2010 because this is what will take the broad market even higher.
5. Steak n Shake(n)
By Jonathan Heller
2:31 p.m. EST
Fremont InsuraCorp has rejected Stake n Shake's (SNS) $24.50-per-share buyout offer. That took less than 24 hours. Sure has been an interesting week for the Shake!
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This article was written by a staff member of RealMoney.com.