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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (37974)	1/25/2000 11:26:00 AM
From: John Madarasz	Read Replies (3) \| Respond to of 99985

New Era or Continuation of an Old One? The chart reproduced below appeared in the December 31 edition of The Economist. It shows the constant dollar GDP per person in Western Europe from the year 1 to the current period. Where the editors got the historical data is a mystery to me. But The Economist is a reputable publication despite its name, so I'll take it on faith that the data are legit. Notice the real GDP per person rises very slowly until the early 1800s. Then the line almost goes vertical until the 1950s, when the slope flattens out a bit. What this chart shows is that rapid growth in the standard of living began in the early 1800s, not the late 1900s, as some with no sense of history would have you believe. Yes, we have new technologies now compared with the early 1800s. But new technologies have been introduced throughout the past 175 years or so. If you want to talk about the birth of a new economic era, 1825 looks more defensible than 1990. ntrs.com M3 Volatility and Treasury Deposits The M3 money supply seasonally adjusted plummeted by almost $57 billion in the week ended January 10 after having increased by $26 billion in the previous week. Was it that Y2K currency hoard being cashed in that caused the sharp drop in M3? Nope. Seasonally-adjusted currency fell by only $2.7 billion in the week ended January 10. Actually, the bulk of the net M3 decline came from a $17.9 billion decline in demand deposits, a $38.1 billion decline in institutional money market funds and a $9.8 billion decline in RPs. These items sum to more than the $57 billion M3 decline mentioned at the outset because other components increased in the week. Now, we always have to be careful in interpreting the week-to-week changes in M3. But at the present time we have to be especially careful. The reason for this is that Treasury balances at banks and thrifts are behaving in very atypical fashion, in large part because of Y2K. The Treasury purposely built up its bank balances to an extraordinarily high level toward the end of 1999 in order to have a lot of cash on hand in case Y2K problems prevented it from raising funds in the market as it normally might have. When private money balances are transferred to the Treasury, M3 falls, all else the same, because M3 includes only private money balances. The banking system does not lose any deposits because of this change in ownership of money balances from the private sector to the Treasury. The chart below shows that there has been an unusually large increase in Treasury balances at depository institutions in recent weeks vs. a year ago. This atypical behavior of Treasury deposits most likely is playing havoc with the seasonal factors applied to M3. So, let's wait a few weeks before we jump to the conclusion that the 1999 Fed tightening is enough to meaningfully rein in broad money growth.