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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Hank Stamper who wrote (382)	7/20/2000 1:29:12 AM
From: Dr. Anthony Keyodo	Read Replies (2) \| Respond to of 10065

OT A short note from Lars.............. Greetings! This is the first I have been on in about 3 weeks. I tried to get to the new thread and a message popped up that said I wasn't an SI member??? Weird. I will have to find out why later. Please pass along to the threaders that I am alive and well. Things have been horribly busy. New house, bride to be, wedding planning, work, etc. Overall, things are beyond crazy. Lars

To: Hank Stamper who wrote (382)	7/20/2000 3:34:30 AM
From: Dave-in-MarinCa	Read Replies (2) \| Respond to of 10065

David: First, Bob is refering to real M2 growth, inflation adjusted. If you add inflation to Bob's real number, you get close to Mr. Moto's number. Now, I asked that very same question in a email to Mr. Moto and recieved the following response on 7/11: "Thank you, David. There is still growth in M2. However, the rate of growth has not varied significantly for some time now. So, it would be flat only in that reference. It's still growing at or near the 5.5% rate. Moto" I believe there is an opportunity (for me) in communication here. Recalling a past business trip to Hokaido, I learned to listen better than I do in the US. I believe what Mr. Moto is saying is the rate over the last 12 months is little changed from 5.5% (I calculate 4.8% +or- ) close enough...however, M2 is now "flat in that reference" (for the last three months) but Open Market operations must add money at an accelerated rate to keep it flat. As a point of reference , the following <http://people.we.mediaone.net/wfhummel/bankreserves.html> gives a good description of how the fractional banking system works. The Fed controls the Fed funds rate through its open market operations, buying or selling short term securities (repos) for its own portfolio. This adds or drains banking system reserves as needed to balance supply and demand at its chosen target rate. As money leaves the system, the fed can add money via additional repos. Mr. Moto makes the following observation at <http://www.piraz.com/moton.html> ((double paren. are my attempts to clarify)): "I've already made note of what a good liquidity effort is underway. The frequency of permanent injections has also become unseasonably high. Some may question why the Fed doesn't begin gathering the many 2 billion-dollar repo loans they've been arranging over the past few months into one longer-term funding and a larger amount. The answer is in the pre-Y2K experience. All interested parties witnessed last Autumn that, the longer the money is allowed to remain in the system, the more opportunity there is for the same money to be applied to a variety of unintended applications. ((In actuality, rather than funding Y2K problems, most of it went into the NASDAC!!)) With inflation now a consideration it might be unwise to repeat the routine of last Fall when long-term repo's had a system effect very similar to a permanent injection of funds. One market analyst, in fact, early this year tagged a multi-month term funding as nothing more than a "quasi-coupon pass." Those who may be unsure of what becomes of money once it's permitted a lengthy residency in the banking system, please go here for a brief explanation of how money multiplies((its loaned out)). Repeating what was stated here on ((last))Friday, the average amount of temporary system credit now outstanding during any two-week reporting period ( $18 - $20 billion ) has now significantly and consistently exceeded that of any previously recorded reserves maintenance time-frame but for last Fall's Y2K initiative and a brief spike during the tax season of 1997." So, we have the feds pumping money into the system at record rates just to keep the M2 aggregate flat. Where is it going? Mr. Moto suggests it is going to buy equities to maintain the market. Interesting situation; raising rates to slow down the economy while pumping liquidity into the system to maintain equity prices. Dave