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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (2022)	11/7/1998 8:19:00 AM
From: Justa Werkenstiff	Respond to of 15132

NY Times Today Here is a portion of an article from today's business section: Most significant, perhaps, is a sea change in monetary policy not just domestically but around the world. Central banks, beginning with the Federal Reserve back in September and extending to Britain, Latin America and parts of Asia, have been reducing interest rates fairly aggressively. According to Jeffrey Applegate, chief investment strategist at Lehman Brothers, since the September rate cut by the Fed, 27 central banks have done the same. "In the last month and a half, the global policy outlook has improved," Applegate said. "Then this week we had a slew of data that was stock-market friendly. I think the fear trade is out of the market." Lower interest rates are almost always a tonic for stocks largely because they mean reduced borrowing costs -- and the potential for higher profit margins -- for corporations. So it is not surprising that historically, a cut in the discount rate -- the Fed's borrowing rate for banks -- is followed by an average 12-month increase in the Standard & Poor's 500 index of 18 percent. Stocks have been getting an additional lift from a giant increase in the money supply. According to Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., the broadest measure of money supply, known as M-2, which includes currency in circulation, savings accounts and money market mutual funds, has grown by 2.5 percent in the last two months. The annualized rate for the last three months is 9.3 percent, the fastest annual expansion since 1987. "This tells me that there isn't a credit crunch," Shepherdson said. "And all this liquidity sloshing around has got to go somewhere." That somewhere appears to be the stock market. An increase in the money supply comes basically from the Fed providing reserves to the banking system, which banks use to lend. "New lending and investing power is created as money turnover speeds," said Robert Parks, an economist and consultant to institutional investors in Scarborough, N.Y. "It brings increased spending power that can go into stocks." Another supply of money coming into stocks is from investors selling Treasury holdings in recent days. When Russia effectively defaulted on its debt in August, Treasuries became the darling of investors. No more. The price of the 30-year bond has tumbled this week. Its yield, which rises when the price falls, ended at 5.38 percent, up from 5.15 percent a week earlier. An interesting, if somewhat obscure, reason for the advance in equities may be the decline in stock volatility recently. Volatility -- basically the range from high to low in stocks during the trading day -- peaked on Oct. 15. Applegate notes that since 1948, the S&P 500 has risen an average 12 percent in the twelve-month period after a peak in volatility.