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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (6)	5/1/1998 12:59:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 3536

Henry, thanks for your comments. I should tell you that I sometimes joke about potential conspiracies. Doesn't mean I believe them. I just find it interesting the way market participants focus so intently on whatever the stat-of-the-month is that they exclude every other bit of information from their thought process - as if they thought the FOMC's next move (or non-move) hinged entirely on that one stat. Once that stat was out, all fear was instantly erased and the stock market (more my focus than bonds) was off to the races again. Though it still has a little distance to cover before seeing new highs, the strategists who, earlier in the week, were calling for a correction of 5-10% quickly changed their tune and pronounced the correction over. I got into the securities industry at a time when everyone would sit around (seems to me they released it during market hours then, but I forget) waiting for the weekly money supply figures. That was 1983. Now, no one cares. However, the Barron's article seemed to indicate some renewed interest or concern over the pace of M2 growth while also explaining its shortcomings as a policy tool. It occurs to me that one might be able to learn something from figuring out what indicators participants and policy makers are just beginning to take note of. If the strength of US markets is liquidity driven as we hear every day, can we get any useful information from M2? If part of the surge in M2 is a result of capital flight from Asia, for example, what might cause that trend to reverse? If it doesn't reverse, how long before excess liquidity results in inflation. Is asset inflation any less significant than wage inflation or goods and services inflation? The Fed has been known to be preemptive at times - could the surprisingly strong GDP, the exuberance in the markets and other stats generate enough concern inside the Fed to outweigh the lack of historical evidence of inflation. After all, the ECI and other inflation measures tell us whether there WAS inflation, not whether there WILL BE inflation. AG, in testimony a month or two ago, talked about the delicate balance between domestic strength and Asian weakness whereby the US economy MIGHT be restrained just enough by Asia to prevent the build-up of inflationary pressures, but not so much as to put us in a recession. That "perfect world" scenario has contributed to the continuation of the bull market. The problem is that, IMO, he was not predicting such a perfect balance, but rather indicating how important it is that this balance actually occurs. When he looks at the stats now, does he see this balance or does he see a US economy booming in spite of problems elsewhere. If that balance that he spoke of is not there, will the Fed's inflation hawks push for a preemptive move? Jawboning may have helped with the exuberant markets this week as you suggested, but will that be enough? Just my 2 (or 3) cents. Bob