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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Yorikke who wrote (5378)	1/2/2002 1:49:53 PM
From: Hawkmoon	Respond to of 33421

The money supply is NOT shrinking. It is in fact expanding at an unprecedented rate. There are other inaccuracies and rather 'hyped' statements that cause me to step back and question Mr. Droke's expertise. And a good part of the reason the money supply is increasing is because of the deflation in other asset classes, in favor of holding cash in money market accounts. When cash sits on the sidelines, it equates to an increased demand for "money", which has to be met by the Fed (which buys up US T-bills and injects cash into the system). When money is then redeployed back into equities and other non-currency assets, the Fed must THEN step in and "sop-up" the excess liquidity, generally by selling US T-bills from Fed holdings (receiving USD in exchange which they then "retire"). Only when it fails to do so, do we see the fear of inflation due to a weakened USD, as the supply of currency exceeds the demand for it. But that's not really what we're seeing right now. The dollar was on a tear over the past couple of years and really needs to enter a period of consolidation and "stability". The fact that it's been increasing in value, despite every attempt by the Fed to lower rates and flood the system with liquidity, suggests that those "animal spirits" Keynes referred to, are still prowling around instilling fear in the hearts of global investors. One only has to look at the monthly chart of the USD to clearly see the distortion that has occurred in the USD's market: futures.tradingcharts.com So we can see the USD decline to 103-105 or so tomorrow, and not suffer any long term violation of the upward trend. Unfortunately(depending on your position), the inevitable devaluation of the yen will continue to place upside pressure on the US dollar, and force the Fed to pump even more money into the system in order to offset the continued demand. The Japanese people have $12 Trillion in savings locked away primarily in Yen denominated cash and bonds. When they finally get their tickets on the "clue train" that the Japanese government and BOJ have no other recourse but to devalue the yen, and thus, their life's savings, I see a major move of Japanese savings beginning to look for a home elsewhere, including the US. There is currently some $4 Trillion in money market funds parked on the sidelines. But there is only about $3.5 Trillion in US T-bills outstanding against our national debt and the Fed probably only has some $1 Trillion worth available to them to "sop-up" excess liquidity. Which means the US government NEEDS to deficit spend in order to prevent overstrengthening of the USD. Hawk

To: Yorikke who wrote (5378)	1/2/2002 1:59:07 PM
From: MulhollandDrive	Respond to of 33421

When I read : "' An extremely low rate of interest essentially proves that deflation has been underway for some time, for it reflects the falling demand for loans in the face of a shrinking money supply.' " That sentence really threw me too.... I was actually giving him the benefit of the doubt (assuming he meant "expanding") since "in the face of" implies a meaning of "in spite of" ... It also it seemed that he could have been making the argument the recent 0% rates on new vehicles are deflationary. Basically I was interpreting him to be saying falling rates (actually they are rising for the moment) while the money supply is expanding is an indicator that demand is waning , thus deflation.. I agree with you on Tice's site, was reading there this morning. Happy New Year to you too...