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Strategies & Market Trends : Stock Attack II - A Complete Analysis
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To: sam_o who wrote (16492)8/23/2001 11:55:33 AM
From: eddieww  Read Replies (1) of 52237
 
At the risk of blind-leading-the-blind syndrome: -g-

The FED has been on a very aggressive easing cycle since the first of the year. Also, they have expanded M3 money supply at a 14% annualized rate since last Nov. The point of monetary easing is to stimulate spending, and since the consumer has, up to now, continuously "done his part" it is reasonable to surmise that the easing and monetary expansion is aimed at increasing corporate capital expenditure - getting businesses to buy more from other businesses. The problem is that if corporations are already heavily in debt and too rich in capital equipment, no amount of monetary ease and low interest will cause them to go further into debt, especially if they see everyone else pulling back and their margins are getting squeezed through lack of pricing power. Lack of demand for money and increasing supply is the definition of inflation. One simply has to look to see where the inflation is manifesting. Up until very recently housing prices have led the inflationary charge. Now that housing may be cooling, we see the dollar start to slide, which is another manifestation. The reason I mentioned the long-bond yield's lack of response to the easing cycle is that it measures the money market's future inflation expectations. If the bond traders believe inflation will rise, (more dollars available but less demand for them), they will be unwilling to buy the longer maturities at lower yields since they won't provide a real return (profit).
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