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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: Gersh Avery who wrote (4852)5/6/1998 8:53:00 PM
From: MrGreenJeans  Read Replies (1) of 42834
 
Gersh

The federal reserve is constantly in the market finetuning the money supply for technical reasons. They drain and inject funds to maintain certain rates at an equilibrium such as the federal funds rate, they may drain reserves during the tax season due to an increase in the amount of tax refundings in the general population, they may increase credit during the holiday shopping season or they may increase or decrease the supply of money in a certain federal reserve district due to declining or increasing economic activities.

The economy is much like an aircraft carrier. When an aircraft carrier reverses course it takes time to turn the carrier around. The aircraft carrier cannot turn on "a dime." When the federal reserve makes a significant change in the money supply the general economy is effected anywhere from 6 months to 1 1/2 years later. There is a lag between an action by the federal reserve and the time it filters through the economy.

Under Alan Greenspan, policy changes have been "announced" after scheduled federal reserve meetings and before federal reserve policy has been changed Alan Greenspan usually hints in interviews, on and off the record, and in speeches that policy may change sometime in the future. It is a warning to participants in the financial markets.

The best and broadest indication of the money supply is M3-see my previous posts for a definition. M3 has been growing at a significant rate in the past few quarters. Excess money seems to find its way to the equity markets and it has not been surprising, coupled with low inflation, that we have seen equity markets booming.
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