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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (1914)	11/6/2003 8:23:46 PM
From: Ramsey Su	Read Replies (1) \| Respond to of 110194

so at least $3b had been reinvested in a non Putnam fund, in the same group of stocks? I have been looking at the AMG data for years and have not been able to make much sense of it. Someone posted this recently and it is certainly the best rear view mirror I have seen. bofasecurities.com It gave a perfect explanation as to why certain sectors are so strong (look at the real estate funds as an example). Unfortunately, I am not smart enough to figure out how to use that information for the future.

To: russwinter who wrote (1914)	11/6/2003 11:14:34 PM
From: mishedlo	Respond to of 110194

Fears of Money Supply Decline Are Overblown Brian Renolds Minyanville Money market fund declines are part of the reason As I write in a public forum, my inbox tends to be a good indicator of people's current worries. Until early October, it was that the economy was growing without adding any jobs. A few weeks ago, it was the Japanese stock market, and last week it was the Russian stock market. Now, the worries seem to focusing on the recent drop in the money supply. Since the start of September, M2 is down $40 billion to $6.090 trillion, and M3 is down $65 billion to $8.831 trillion (the definitions are here). However, I don't think those declines are too worrisome because of the type of outflows and because of the way the data is compiled. In late 2001, when M2 was surging at a more than 10% rate and M3 was soaring at more than 12%, I wrote a column titled "Fears of Money Supply Growth Are Overblown". Back then, bond investors were worried that the strong growth in money would lead to a surge in inflation, and equity investors felt that the extra money would lead to an improved economy and stock market. However, I noted that a large factor in the rise in money was due to incredibly strong inflows from money funds. So, while an increase in money is normally associated with rising economic activity and stock prices, I thought that that surge would have perverse effects because the inflows into money funds was the result of an arbitrage causing money to flee from riskier assets to safer ones. Now we are seeing the opposite impact (hence the opposite title), and the decline in money may be having the perverse effect of adding to economic activity and stock prices. Of the $40 billion drop in M2, retail money funds account for $39 billion of it. Of the incremental $25 billion drop in M3 over M2, institutional money funds account for $24.4 billion of that. On the retail side, I've detailed how money fund assets went from a little more than $800 billion at the stock market peak in 2000 to over $950 billion as the economic and investment environment deteriorated, and how that money has gradually been flowing back out of money funds and into riskier assets over the last year. That trend has continued in recent months, so retail money fund assets are back down to where they were when the bubble popped. That means that, should retail investors continue to regain faith in the economy and markets, that is still a lot of fuel left to power markets, even though a continuation of that trend would be a drag on the reported money numbers. On the institutional money fund side, I've written how there could be some modest pressure to leave money funds for riskier assets due to the ending of the arbitrage that pulled assets into money funds. However, from September 2 to October 21, iMoneynet (which is known as the bible of money fund investing) reported that institutional taxable assets rose $26.9 billion, in contrast to the Fed's data showing the above noted drop of $24.4 billion ($18 billion on an un-seasonally adjusted basis). So the iMoneynet and Fed numbers seem to be at odds; given what I know about iMoneynet's data gathering procedures (having been a money fund manager and a client of theirs in another life) and that the Fed often revises their numbers as more data comes in, I would side with the iMoneynet numbers. As an aside, iMoneynet reported that taxable money fund assets fell $15.2 billion last week, and $10.7 billion this week. If the Fed's numbers jibe with iMoneynet's, last week's drop will show up in tonight's money supply release, and this week's drop will show up in next Thursday's release. Another odd factor in the money numbers is the seasonal treatment of savings deposits. The Fed adjusts the money numbers for seasonal factors, which is a valid premise. However, I've written how many money families that are sponsored by banks and other financial institutions have begun sweeping money market accounts into and out of bank products in recent years. That activity has intensified this year, which means that it is now much harder to get a handle on an accurate money supply total. There are now large sums of money (sweeps may be in excess of $300 billion) that move for non-seasonal reasons, and the historical seasonal factors that are used to adjust for movements may not be as relevant now (it's for reasons like this that the Fed has de-emphasized the money supply numbers when making policy decisions). For the September 1-October 20 period, the Fed reported that savings deposits grew by $63.9 billion. Yet, on a seasonally adjusted basis (which is the number most people look at), this translated into a gain of only $5.2 billion. We have no way of knowing if that increase in deposits was a function of sweeps but, if it was, then the $40 billion drop in M2 would look more like an $18 billion gain. So, based on the type of the drop and issues with some of the numbers, the decline in money may not be as worrisome as the headlines would imply. Brian Reynolds