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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 665.67

-0.9%

Nov 17 4:00 PM EST

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To: Monty Lenard who wrote (1117)	12/10/1998 6:41:00 PM
From: Gersh Avery	Read Replies (2) of 99985

Hi Monty .. Just now trying to catch up with my reading. OK .. money moving around..... 1) 401k contributions are continuing to take place .. however smaller and smaller percentages of these monies are going into stock funds. I think that it takes ~1/2 billion per week to pay for the overhead of the mutual fund system. Therefore the impact of these funds at this time is roughly neutral. 2) Foreign investors .. exchange rates have shown a desire for liquidity to be leaving our markets to find better pastures elsewhere. 3) The long bond has been going up. This takes cash (daahhh). A lot of this money is cash rolling out of stocks. Usually there is this relationship between the yen and the long bond that is caused by, what they call, carry trade. Someone (like LTCM) borrows yen from a Japanese bank, converts it to dollars and buys the long bond. Converting large blocks of yen to dollars causes the yen to drop in value and, of course, the purchase of the large blocks of long bond causes the value of it to go up. Now when someone (like LTCM) is forced to cover such a trade you see the value of the yen go up and at the same time the value of the bond go down. We are not seeing this now. Both the bond and the yen are going up at the same time. Again .. I believe that the cash for the move up in the long bond comes from stocks. So then, we have a net cash drain from the stock market. Why have we not yet tanked? I believe that the specialists and market makers are bringing up the prices of stocks to establish shorts. Think that may explain the price action you have observed? Gersh

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