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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Defrocked who wrote (14338)	2/19/1998 11:10:00 PM
From: Defrocked	Read Replies (2) \| Respond to of 18056

Regarding 11% M3 growth rates in the US: (1) We haven't had this rate of growth in US money supply since early 1985. At that time the Fed was pushing money into the system to aid the Farming Crisis, S&L bailout, oil patch recovery aftermaths of the 81/82 recession. (2)The '79,'80,and '81 average growth of 10.4% in M3 over that period lead to the 11.1% average CPI rate during the same period. The subsequent tightening of money in '82 to a 5.1% growth rate and lower lead to the recession. (3)Certainly, since the "salutory effect" of the Oct.decline is now nonexistent in US equity prices, the Fed must reexamine its money growth posture or lose its inflation-fighting credibility. The currency markets will surely reflect on this, potentially bidding up Eurocurrencies to the dollar's detriment. Japan's lack of fiscal stimulus and the attendant uncertainly for the Far East region is a very loose underpinning for the dollar. (4)Unanticipated money growth usually results in unanticipated real growth. This ultimately may be the message of the current rally in US equities. If the 11% money growth continues, however, we will see a return of inflation in the US. Equity Bulls will argue that any inflation would be offset by lower import costs from the Far East. But this goes counter to their earlier argument that the Far East devaluations would only have limited impact in the US given our large domestic economy. Surely the Fed must recognize the emerging consequences. Look for AG to make another equity valuation warning at a minimum. (5)Watch currencies for any initial response. Watch precious metals and other sensitive commodities. (6)Thursday money number release parties come back in vogue. BWDIK.