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Strategies & Market Trends : Analysis Class for Beginners

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To: Arthur Tang who wrote (692)	1/16/1998 9:47:00 AM
From: Arthur Tang	Read Replies (1) of 1471

How importants is your knowledge of liquidity and fed fund rate? Stock market is very sensitive to liquidity of personnal accounts and pension and mutual fund accounts. Most accounts are fully invested (no cash to buy anything but hoping for maximum profit). Some cash for pension and mutual funds are for redemption purposes. The safe cash amounts are about 5%. On lean years, you may think 8% is needed. Today, most funds are down to 1.6% creating a forced liquidity problem ending with stock volitility which can not be controlled. Fed fund rate is 0.25% over overnight discount rate. It is the fund to loan between banks. When liquidity in banks are tight, the fed fund rate goes up. The stock market usually pulls back. If the rate is lower, then the liquidity is good; the stock market usually goes up. Currently 5.5% is the barometer. Feds often added liquidity causing the stock market to go up. Occasionally they drained liquidity and the stock market went down for a whole week, last week. This week they added liquidity, and we are smiling again.

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