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To: Peter Singleton who wrote (54252)	4/1/1999 6:05:00 PM
From: accountclosed	Respond to of 132070

Two observations: 1. Many of the announcements of adding liquidity are short term measures such as overnight and over-weekend. If they continually recycle what they are adding, it gives the false appearance that they are cumulative. Don't get me wrong, a lot is being printed. But I think there is a little over-counting going on by folks that are pointing to those press releases. If every one of those announcements was a permanent addition of reserves, it would be a totally different picture. 2. Also I expect the fed funds picture over the last few days has been skewed by end of quarter. Although in this post Henry was talking about libor, the same principle applies, I believe. Message 8516156

To: Peter Singleton who wrote (54252)	4/1/1999 6:15:00 PM
From: Knighty Tin	Read Replies (3) \| Respond to of 132070

Peter, My explanation is simple, as I am also no currency expert. The Fed adding reserves simply allows banks to extend more credit. However, if demand for credit is greater than the supply, even with the added reserves, you get a rising rate as many borrowers bid for the limited pool of cash. It is a supply and demand market like anything else. The Fed is creating huge supply, but the demand to borrow money is larger. Now we come to the part that is more subjective. The relationship between the big stocks and Fed Funds is, IMHO, quite simple. The final borrowers are not increasing business capacity, because they have too much already. What they are doing is speculating in securities. So, adding reserves has much the same effect as cash flowing into mutual funds. This certainly isn't a 100% correlation, but my guess is most loans find their way into financial speculation of some sort. It may be a hedge fund borrowing at 100 to 1 leverage on a derivative spread position or it may be Merrill Lynch extending credit to customers who want to buy more Amazon.Com. But the financial markets are running on debt right now and the Fed is determined to feed them their pound of flesh. That is why monetary moves like adding to reserves has little effect when the market heads south. In bear markets, folks don't want to invest in the markets even if they can borrow at low rates. This puts the Fed in a tough position. If they don't continue to not only feed the monster they created, but feed him more, the market will crash. But, as they feed him more, bond rates go up and the dollar comes under pressure. So far, neither higher bond rates or a dollar decline have been severe enough to force AG's hand. But they will. And, oh, what a happy little crash the market will have then. MB

To: Peter Singleton who wrote (54252)	4/1/1999 7:30:00 PM
From: Kailash	Read Replies (2) \| Respond to of 132070

Overnight repos - so what is it: MB is saying this is money that heads into the economy and likely stocks; AR says they are mainly temporary but not only. How do we know? Who is right? I mean, one of you two must know the truth and the other one not, no? <g> The Fed's funds are now trading at 5 3/8, a full 5/8 above their target (target? in the news it's simply the Fed rate - it's official!) of 4 3/4. Imagine the outcry if this became official - "the Fed just raised rates by 5/8, virtually erasing the three dramatic cuts in the fall that saved the world from financial melt-down." "Sorry folks, we've been meaning to tell you, but we've been busy debating whether to announce if we're going to tell you that we're thinking of maybe someday - I mean, just sort of chatting about it - about tightening the bias. In the mean time, we've let rates go up so we won't have to decide anything - it's not our fault. We never raised rates and we don't intend to but frankly, we can't keep them down." Kailash Thursday April 1, 9:50 am Eastern Time Fed adds reserves via 4-day fixed, O/N system RPs NEW YORK, April 1 (Reuters) - The Federal Reserve added temporary reserves to the banking system on Thursday via four-day fixed and overnight system repurchase agreements, the New York Fed confirmed. The operations were expected. Federal funds were trading at 5-3/8 percent, well above the central bank's 4-3/4 percent target for the rate, at the time of the operation. biz.yahoo.com