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Technology Stocks : INTEL TRADER
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To: Chris who wrote (2808)5/7/1998 2:35:00 AM
From: Gersh Avery  Read Replies (2) of 11051
 
Chris Re:The Fed and money flow;

I'm still trying to get a good understanding of this stuff myself.

Try this experiment .. Ask any CPA you might know "Exactly what is the process that money gets into our system." They will probably not be able to give you an answer.

So .. with that in mind .. here's something of a try:

Main banking systems within the US rely on the Fed to supply them with a commodity (cash) which they then market. First in line to receive (borrow) this money is other banks and the rest of the financial system (Wall Street).

A sizable percentage of the market is now on margin. This would include shorted stock, as the shares that are shorted are borrowed from somewhere. As money is injected into the system, the system is allowed to expand. When liquidity is drained...

The fine tuning that the Fed does takes months to impact the general economy .. however the first place that it hits is the stock and bond markets.

It used to be somewhat popular to watch the Fed and assume that any movement of the market could, to some degree or other, be attributed to the Fed. For whatever reason, the Feds actions are being overlooked today. Except, of course, when they raise or lower interest rates.

Consider this .. any raising or lowering of rates would be done by using larger "fine tunings" in the exact locations these actions are being done now. To raise rates they would drain a lot of liquidity. I think that any one would agree that a change in interest rates would have an impact.

Now .. what is the impact of a drain of liquidity? When the market shows every single sign that it will go up starts to go up and then stalls and drops .. just like today.

It would not surprise me that I have several points in error. For that reason please consider everything above as my personal opinion.

Gersh
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