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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Gersh Avery who wrote (1208)	1/29/1999 12:44:00 PM
From: Henry Volquardsen	Read Replies (2) of 3536

Hi Gersh, After Chip and Nancy mentioned them I saw your comments on the other thread. Sorry I didn't get a chance to answer directly. You say My new outlook looks at fed actions being a reaction to already existing sets of circumstances. For the most part that is true, particularly for the current Fed. I would say that well over 90% of their actions are just designed to smooth market activity and therefore totally reactive. When Volcker was chairman the Fed was much more explicitly monetarist and some clues could be drawn from adds and drains. This Fed doesn't operate that way. When they decide something they come out and announce the level. This puts much more emphasis on reading the tea leaves ahead of time and less on mathematically oriented analysis. As far as the impact of money flows in the stock market it has little aside in bank accounts. And the people who bought the stocks had direct impact on monetary aggregates. In the example you cite someone has sold stocks and set money on the side. Well they have set it money in accounts before had that is now being replaced. So the actual impact on the aggregates is neutral. It is more important to analyze where the money is being generated from; is margin financing up or down etc. So the Fed aggregates are not very useful in analyzing asset allocation and large flows between investment classes. As far as Fed funds. I use an internal system so many of the symbols I use are unique to our system. There is however a Fed Funds contract on both the CBOT and CME which will give you a better feel for market sentiment. I believe the symbol for the CBOT contract is FF. Henry

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