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To: lorne who wrote (51244)	4/8/2000 10:28:00 PM
From: lorne	Read Replies (1) \| Respond to of 116753

For Gold Bugs, Rallies Fail to Last as Long as Hope: Spotlight Sat, 08 Apr 2000, 10:21pm EDT By Claudia Carpenter " New York, April 7 (Bloomberg) -- Eddie Toolan says he's convinced of the value of gold. A third of his family's $1 million portfolio is wagered on the precious metal. And even though his gold holdings are down by more than half from their peak, Toolan is hoping they will soon end a four-year decline. " Full story >>> quote.bloomberg.com

To: lorne who wrote (51244)	4/9/2000 4:51:00 AM
From: d:oug	Respond to of 116753

Alex will explain why the Horse is Gone & Barn Door is Closed. Two invalid answers from Alex are as follows: (1) To keep the horse out of the barn. (2) Its the reason why the chicken crossed the road. doug

To: lorne who wrote (51244)	4/9/2000 5:20:00 AM
From: Alex	Read Replies (1) \| Respond to of 116753

Central bankers need to care about money supply Don Coxe National Post An apology to those who resent a columnist who won't stick to the one-shot format. Among those who might be inclined to skip these remarks are those who missed last week's discussion, and those who, having read it, swiftly forgot it. Last week I wrote that the U.S. Federal Reserve -- and most economists -- seem to have lost interest in money supply numbers. Until recently, it was an article of central bankerly faith that money supply growth and inflation were closely correlated. Milton Friedman's dictum that "money matters most" was the hallmark of Paul Volcker's winning war against inflation. The new economics says that money supply numbers no longer are meaningful for predicting either inflation or economic growth. Alan Greenspan is rumoured to be interested in the Goldman Sachs approach to economic forecasting, which is heavily stock market-based. As Goldman's economics department has shown, the most important forecasting factor these days isn't money supply changes, but the ratio of stock prices to gross domestic product. The higher the stock market, the more liquidity pours into the economy and the faster it grows. Conventional analysis and forecasting emphasize monetary policy, which is effected through management of the monetary base (paper money plus bank reserves). Goldman says that no longer works, because there is a new kind of money supply that is growing rapidly and driving the economy. Soaring stock prices create a new form of money that corporations use in place of debt financing, and consumers use instead of savings. The technology sector of the economy accounts for a disproportionate share of overall activity, and it finances itself largely through stock issuance, whether for capital spending or acquisitions. The typical Nasdaq company cares little whether the Fed raises the fed funds rate, because its borrowings are so modest in relation to its total capital. In this new era, the Fed raises the cost of money at a time of huge credit demand, but allows overall money supplies to grow fast. Two kinds of borrowers have become important in credit demand: margin account speculators, whose borrowing only contributed to asset inflation, and the newly rich who borrow rather than sell stock to finance upscale lifestyles. Their levered Sybaritism doesn't push up the costs of the kinds of things measured in the consumer price index. Thus the new paradigm: The Fed should be concerned if stock prices get outrageously high, because that will create so much wealth and new-style liquidity that asset inflation could seep outward from the stock market into economic inflation. But the Fed need not concern itself with money supply growth in itself. The Goldman approach has much to commend it. It essentially takes the new economy analysis and translates it into monetary terms. So why do I worry about it? I am not the least bit upset when new technology displaces old technology in the economy. That is the way things should be. I am, however, concerned when that analogy gets pushed so far that central bankers begin to lose interest in controlling money supply. I am sick of hearing that "the old relationship between money growth and inflation doesn't work anymore." It hasn't worked for three years because the spread of deflation from Japan and China through Asia and then across the world meant that central banks were able to create credit faster without increasing inflation. A deflation-prone world absorbed new money like a sponge. The collapse in commodity prices that signalled a historic breakout of global deflation gave central bankers latitude when financial systems were tottering in 1997 and 1998. But money supplies have continued to grow rapidly at a time when most economies are strong, oil prices are up 175%, U.S. labour supplies are tight and stock market speculation is, by some measures, at its most fevered level since 1973 or even 1929. Inflation has finally started to climb right along with money supplies. As of now, it is being blamed on oil and "special factors." We heard that excuse in 1973. The case for long bonds and stocks rests on faith in the Fed. If money supply growth stays too high, the Fed will fall far behind the curve, with hideous consequences for the U.S. dollar and financial assets. nationalpost.com