MDA - Market Direction Analysis Message Board

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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 695.59

+0.4%

4:00 PM EST

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To: XBrit who wrote (58150)	8/14/2000 10:10:23 AM
From: pater tenebrarum	Read Replies (1) of 99985

JM, i think this has to do with the fact that M3 contains institutional money market funds...the big increase in same is a sign that liquidity is ample. that can be seen in the credit markets generally, where issuance of commercial paper has accelerated to a 40% annualized pace over the last four weeks. MZM is also re-accelerating...it stalled for a while, but is now back on its previous trajectory. some people are pointing to the contraction in the monetary base, but that is more or less irrelevant, as it only concerns currency in circulation and vault cash. since the expected y2k cash drawdown failed to make an appearance, the vault cash pile is being reduced. to come back to M3, it rose by almost 20% over the past 2 years, and is currently growing at close to 12% annualized. so by no means is monetary policy tight, quite on the contrary. it is also clear why: since the tightening cycle began, inflation has accelerated by a bigger amount than the increase in the Fed funds rate. therefore, monetary policy in terms of real rates has actually eased, not tightened.

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