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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Hank Stamper who wrote (6485)7/5/1999 12:30:00 PM
From: MrGreenJeans  Read Replies (1) of 15132
 
David

Bob places a lot of importance on the money supply because it is the excess money that finds its way into equity markets creating large moves."

When you write "money supply," to which "M" do you refer: M1, M2, or M3. And, how specifically, does the money find its way into the markets

I refer to M3 which is the broadest measure of the money supply which incorporates M1 and M2.

Specifically? Now that is a very good question. I can only point to the fact when M3 has been correlated with equity price increases the correlation has been strong absent monetary inflation. Perhaps this is because when the money supply increases so does the GDP as noted by Milton Friedman and Anna Schwartz (1962) and this increase in GDP is positive for earnings and thus stock prices.
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