Credit is getting tight again and its making some players look in
their rearview mirrors. Take a gander at the following table which
presents changes in the rate of growth of money growth, as
measured by the quarterly and six month annualized rates
from the Fed's weekly H6 Report:
MONEY STOCK from H6 Report
Percent change at seasonally adjusted annual rates
1998 M2 M3 3Mo.% Chg.
25-May-98
Feb. 23, 1998 (13 wks.prev.) 8.1 11.1
Nov. 24, 1997 (26 wks.prev.) 7.7 11.3
24-Aug-98
May 25, 1998 (13 wks.prev.) 5.4 5.6 49.5%
Feb. 23, 1998 (26 wks.prev.) 6.9 8.5 24.8%
1999
8-Feb-99
Nov. 9, 1998 (13 wks.prev.) 10.4 12.3
Aug. 10, 1998 (26 wks.prev.) 10.1 11.9
10-May-99
Feb. 8, 1999 (13 wks.prev.) 6.0 4.9 60.2%
Nov. 9, 1998 (26 wks.prev.) 8.1 8.3 30.3%
Note that the August/September 1998 market turmoil was
preceded by a rapid decline in money growth over the prior
three months, almost a 50% reduction in the second derivative
of three month annualized growth.
More recently, the decline in money growth has been even
more dramatic, from a 12.3% pace to a 4.9% for a 60%
change in the rate of change.
The unanswered questions are (1) whether or not the credit-induced
equity rally will sputter again due to higher rates resulting
from slower money growth, and (2) will the Fed step in again to
liquify the markets if dislocations reoccur as they did
last Fall.
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