You heard it first from your's truly, and now John Mauldin quotes Bill King,
Is Greenspan Secretly Tightening?
But speaking of Greenspan, what is happening to Easy Al's money machine?
Bill King noted this morning: "M2 has fallen under its 5-week moving for
the first time since March and April. This occurred in March/April '02;
stocks then tanked. After M2 spiked for 9/11, it fell under its 5-week MA
when that extraordinary monetary injection was removed. You have to go
back to April 1995, when the Bank of Japan went to zero interest rates, for
any protracted occasion of M2 trading under its 5-week MA.
"Except for three weeks in April 2002, M2 has not traded below its 13-week
(quarterly) moving average since April 1995. M2 is about $16B over its 13-
week moving average. Stay tuned; stay alert!
"M2 fell $4.1B for the week end 9/8, but M3 rose $11.5B (Fed and central
bank debt buying?). The M2 chart shows the biggest decline since just
after 9/11. There is no comparable decline in the past 12 years.
"It's only one week, but Fed 'free reserves' for the 2 weeks ended 9/17
fell to a meager $790m. We cannot recall the last time Easy Al allowed
free reserves to fall under $1B! The previous 5 reports for 'free
reserves' are: $2.051B (9/3), $5.148B (8/20), $2.012B (8/6) and $2.098B
(7/9). The monetary base fell $3.547B (9/17). Is Easy Al quietly
tightening? The summer bond collapse is a seminal event, a revolt against
Fed largesse. For years, Fed easing produced bond rallies as wise guys
poured into bonds because financing costs were reduced. However, now there
is little room for cost-of-carry profits and pros are concerned about
currency risk and the budget deficit. Easy Al and the Fed realize that the
exploding budget deficit and dollar weakness, with foreign central banks
holding the bulk of US debt, is a dangerous environment. They also
increasingly realize that they are at the limits of easy money and if the
dollar tanks, rates will rise. It's time to closely watch Fed behavior
because it appears to be diverging from its rhetoric |
