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

To: XBrit who wrote (58150)	8/11/2000 9:37:14 PM
From: Oblomov	Read Replies (1) \| Respond to of 99985

M3 is still expanding while M2 is flat or contracting. Within M3, the greatest growth is in institutional money funds. So, it appears that the institutions are cashing out of risky assets. The retail money funds are contracting, so either these retail funds are being spent on consumer goods, or the institutions are simply distributing shares of stock to the retail investors. In addition, it appears that the liquidity added by the Fed is being used to build the credit base (which resides in the institutional MMFs), as necessitated by strong consumer credit demand. What is actually happening will be much clearer when the Flow of Funds report comes out September 8...

To: XBrit who wrote (58150)	8/14/2000 10:10:23 AM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

JM, i think this has to do with the fact that M3 contains institutional money market funds...the big increase in same is a sign that liquidity is ample. that can be seen in the credit markets generally, where issuance of commercial paper has accelerated to a 40% annualized pace over the last four weeks. MZM is also re-accelerating...it stalled for a while, but is now back on its previous trajectory. some people are pointing to the contraction in the monetary base, but that is more or less irrelevant, as it only concerns currency in circulation and vault cash. since the expected y2k cash drawdown failed to make an appearance, the vault cash pile is being reduced. to come back to M3, it rose by almost 20% over the past 2 years, and is currently growing at close to 12% annualized. so by no means is monetary policy tight, quite on the contrary. it is also clear why: since the tightening cycle began, inflation has accelerated by a bigger amount than the increase in the Fed funds rate. therefore, monetary policy in terms of real rates has actually eased, not tightened.