Excerpted from the November 1, 2008 edition of Notes From the Rabbit Hole

The major media has done its job. After burying its collective head in the sand for years as Wall Street perpetrated a moral hazard of epic proportions upon Main Street America and much of the rest of the world, the media have now scared the public so thoroughly with daily stories about debt, derivatives, evaporating liquidity and now, even deflation itself. The public, as usual eats it up and creates the counter-party for what comes next.

I am growing as tired of posting macroeconomic charts as you may be of looking at them (my first love after all is technical analysis of stocks and markets), but they remain vital as we look for the all important turning point from deflation overload to phase one of the reflation - with all the good and bad that it will bring.

To review, my stance has been a simple progression: Deflation impulse (2002) begets inflationary policy, which brings on an inflation-fueled boom and the 'global casino' environment born of moral hazard and built upon misperceptions and greed. This is corrected but good with another, more severe deflation impulse, which begets reflation policy, which brings on another more severe inflation problem as we ride the cycles to von Mises' Crack Up Boom and the law of diminishing returns.

Libor has eased significantly. The 3 month Libor is similar. The chart is self-explanatory. Now let's look at M2 and MZM courtesy of the St. Louis Fed.

M2 has been in launch mode throughout the crisis, but its zero maturity cousin, MZM has failed to launch. Last week we noted a little hitch upward in MZM.

This week the little hitch has grown bigger and has in fact risen to new highs. It is not an earth shattering move but it is now hinting that funny munny is beginning to dribble to where policy makers want it to go. The flat line that has encompassed all of 2008 can be looked at as a consolidation before heading higher (into uncharted inflationary waters).

In a feat of historically curious timing, NFTRH was launched into the teeth of the worst deflation scare since the great depression. This was really a positive because I consider it a gift to have an opportunity to stick to my guns (fundamental beliefs) and either succeed or fail under the most trying of circumstances and while macro indicators are not conclusive that true structural deflation will be averted, they continue to head in that direction.

The first six issues of NFTRH will be posted here (at such time as they become sufficiently dated) as samples so readers can review how the letter handled historically bad events. Dear subscribers, THANK YOU for sticking with NFTRH through this event, which may - MAY - be about to conclude. Later in today's report and in anticipation of a more normalized environment, I am actually going to get back to charting and reviewing an individual stock. Going forward macro conditions will be analyzed in a more normal, albeit likely bearish, environment.

Much more follows for subscribers...