Exerpt from NYT Marketplace column today
>>But the biggest propellant for stocks so far this year is the explosive growth in the supply of money in the United States, a factor that has contributed to higher stock prices for months. Money supply is growing at an annualized rate of 11 percent, far above what's needed to finance the growth in the nation's gross domestic product. An enormous amount of the excess money is finding its way into the stock market.
This makes for an interesting dilemma for the Federal Reserve Board, points out Ned Riley, chief investment officer of BankBoston. "The Fed has resurrected the irrational exuberance it was trying to temper earlier," he said. "The creation of all this money and lower interest rates have tended to fuel more speculation." The next meeting of the Fed's policy-making committee, in February, "is going to draw a lot of attention to this speculative frothy market," he said.
Almost nobody thinks the federal bank will change its stance on interest rates, which is toward lower rates, not higher. As long as the bank isn't going to step in and spoil the party by raising rates, stocks will likely remain on a power trip.
Still, many professional investors were puzzled by Wednesday's move in stocks. Frederick E. Rowe Jr., head of Greenbrier Partners, a money management firm in Dallas, echoed the views of many big investors when he said: "I don't pretend to understand it, but I don't want to get in the way of it." << |
