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

To: Oblomov who wrote (57433)	7/30/2000 11:28:08 PM
From: patron_anejo_por_favor	Respond to of 99985

Oblomov...I think the way to view it is of the aggregate, not individual purchase. As long as people continue to flip stocks at a faster and faster pace, what you pointed out (that it should be zero sum re: M1 and M2) holds. In an economy with strain already evident in the credit system (as evidenced by widening credit spreads throughout), increased trading volume accompanied by bubblicious increases in stock prices can only be accomplished by tapping money/credit resources further removed from those measured in M1/M2. That's why M3, which is a much broader measure of purchasing power has grown much faster than M1 and M2 in the past 12 months. Another way to look at is that when the going was good, people were tapping every dollar they could extract from the system to throw at the market. Credit cards, home equity loans, 0% down mortgage refinancings...you name it. None of that stuff is in M1 or M2. I think STCGG is correct to the extent that as assets are sold off, money is frequently held in an M1 or M2 related form (i.e.money markets), before the decision is made to start retrenching and paying down debts. As credit extension subsides (ie, banks, mortgage brokers, and securities brokers raise the bar for loan requirements), that money has and will continue to come back into forms more closely resembling cash, at least transiently. IMO, the credit bubble will be much more damaging than the equity bubble when it unwinds, because its more necessary to the daily function of the U.S. economy.