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Gold/Mining/Energy : Barrick Gold (ABX) -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (817)	11/19/1998 10:31:00 PM
From: ahhaha	Read Replies (3) \| Respond to of 3558

I need to point out a few things. The FED "printing" only means they are supplying more reserves at the margin than are demanded due to the current level of economic activity. The creation of extra reserves doesn't mean the psychology is such that the reserves will be borrowed and therefore converted into demand deposits. Most of the time that is what happens. Currently the demand for loanable funds is firm, but not strong. There is slack in the economic system. I don't mean just industrial under capacity utilization, but also psychological slack which is caused by concerns about the future ability for individuals to get more money. The latter has long term residue from the FED erring on the side of tightness during the '80s. In 1995 the FED reversed the erring declaring an end to aggregate targeting and erecting an all factors target. All factors target means no target, flying by the seat of its pants using '70s style interest rate demand management. Early this year we were starting to see signs of inflation psychology: over-confidence, credit card buying, strikes, stress, exuberantly rising stock prices. This disappeared with the stock market correction. The FED is now attempting to invent good times. The problem is that money goes into prices. You know that this will be developing in real economy as soon as it appears in shadow economy. The shadow here is stock prices. The upside price action in stocks since 9/1/98 has been driven by just a little money. You mentioned that equity prices are inflated. They haven't been because since the current M2 growth period start in '95, net money flow as determined by cumulative product of tick and volume on every trade on the NYSE has been commensurate with % price change. The first major divergence between price and money occurred in July. Price advanced while net money was negative. Currently price has taken off almost reaching a high on net positive but meager quantity of money. The money that the FED is creating is going into stocks and the promulgation of interest rate declines is supporting bullish sentiment. This regime will persist until the FED realizes they have an excess money problem. Then they will back off and may have to raise rates. The latter would be a disaster for stocks, so they would wait. During that waiting period the money already in the pipeline will start having its effect on real economy prices. The stock market will be moving sideways. Some exogenous event could then tip the stock market downward and you get a FED between a rock and a hard place. Once you open Pandora's Box you can't easily close it. The outcome of the inability to close it will be rapidly rising gold price, consumer inflation, and a recognition that something needs to be done from the FED. You mention foreign factors. Recently Teitmeyer stressed that the essence of the matter is that individual countries need to address their own internal problems somewhat indifferently to the effects those actions might have with other countries. That view is accurate. Admittedly a strong dollar tends to mask our wage inflation and that was a factor which had Jerry Jordan concerned earlier this year. Since the one day adjustment to the dollar at the end of August, it will take some time before dollar effects find an new equilibrium and can be assessed. Our country is leveraged to nominal goods inflation and the effects are seen quickly in wage inflation. The wage inflation spiral was developing earlier this year, but was cooled when Asia hit the skids. Asia is the kind of exogenous event I mentioned above which can expose the true under currents especially in a situation where the FED is propping or encouraging economic activity with money and interest rate demand management. Without an Asian-like event the problem will percolate and will be somewhat indifferent to foreign events. The reason is that the FED has created an internal financial problem by reacting to the appearances of plight by banks. This is the ongoing problem and why the FED must leave interest rates to the market and concentrate on controlling the rate of aggregate growth. This principle is absolute. Thursday November 19, 1:31 pm Eastern Time Fed's McTeer-US money growth "scary" but distorted LONDON, Nov 19 (Reuters) - Robert McTeer, president of the Federal Reserve Bank of Dallas, said growth in U.S. money supply looked scary but had been distorted by the Asian crisis and the subsequent flight to quality and to liquid assets. ''It's scary to see such increases,'' McTeer said in an interview with Reuters Television. McTeer, who is in London for a conference, was speaking in response to a question on M2 money supply, which has recently shown double-digit growth. This is more evidence of rationalization or denial. It is part of "targeting everything" or "money doesn't matter" philosophies. McTeer says M2 growth is distorted by flight. Let's assume that. M2 started rising rapidly in July. Let's assume a connection, although unclear, between M1 deposits held for the accounts of foreign commercial banks and rise in M2. As the yen weakened these balances would have increased, but when the yen dramatically reversed 9/1/98, there should have been a slowing or a rundown in the M1 component of M2. That hasn't occurred in the slightest. We should have had some slowing in M2 regardless of M1. Given today's jump there is none. These guys are in denial because they are ruled by their fears. They have no confidence in we the people, so they will bring about exactly what they fear. The fools.