Question; Is the Fed pulling in the money supply, or no?

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Since it takes a lot of money flow to keep the billions of stock shares trading at the top. Lower daily volumes on the index's would be more apparent if the fed were slowing the supply. I haven't seen it. Has anyone else?

-- ROB MERDOCH (MRLOVE99@HOTMAIL.COM), February 09, 2000

Answers

Stock market cash flow.

by Tony D.

09 February 2000 12:42 UTC

Nightly Business Report, Feb 8, 2000 16:02 hrs

Analysis Of The Cash Flow Through The Market

PAUL KANGAS: And speaking of trading, there are signs pointing to a possible slowdown on Wall Street in the coming months. New figures show more money may be going out of the market in the future than will be coming into it. Joining me now to discuss this rather ominous trend for the bulls is Tom Wolf, BridgeNews fund flow analyst. And welcome, Tom.

TOM WOLF, FUND FLOW ANALYST, BRIDGENEWS: Good to be back, Paul.

KANGAS: Tell us about this potentially bearish trend.

WOLF: Well, Paul, the stock market goes up and down based on supply and demand and for the past five years the demand has exceeded the supply so the market has gone up. But the research firm Trim Tab sees that changing this year. What they're seeing is more insider selling and new supply coming on the market from public offerings. At the same time we're seeing cash takeovers go down and also stock buy backs are flat.

KANGAS: Well, this is not a very nice trend here. How serious could it be? What kind of an impact could this have, let's say, percentage wise, on where the market is now?

WOLF: Well, I know one thing, Paul, is that it creates about a $37 billion outflow from the market each month and this is only being partially offset by new money coming in from individual investors. Another problem is that much of the new money coming into the market is being borrowed. Now, in January, margin debt was up 5.3 percent after climbing 62 percent last year. Now, the last time margin debt rose so much faster than the overall market was in 1993, and after that period of time, stocks went down for a while.

KANGAS: I know, but this market has defied practically all traditional trends.

WOLF: Right. Well, most of the money is still going into the bigger technology stocks and the NASDAQ 100. So even though outflows might be increasing somewhat, you're still going to see concentrations in specific sectors of the market and the hot places right now are still in technology, biotechnology and telecommunications included.

KANGAS: And you think that trend will stay alive for a while?

WOLF: Well, I think as long as margin debt keeps increasing that's making up the difference between the out flows and the in flows, Paul.

KANGAS: That's a rather bearish picture. You're talking basically about the fact that the math is simply not with the market anymore?

WOLF: Well, right. The math for the little guy is changing and it's not in his favor anymore.

KANGAS: All right. This is not nice to hear about. But maybe something will come along to change it the other way. Do you think so, Tom?

WOLF: Well, anything could change at any time in this market and people might just shift more assets and buy more stocks.

KANGAS: OK, very good. Thanks so much, Tom.

WOLF: OK, thank you, Paul.

KANGAS: My guest, Tom Wolf, correspondent for BridgeNews.

Nightly Business Report transcripts are available on-line post-broadcast. The program is transcribed by FDCH. Updates may be posted at a later date.

The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT.

Information presented on Nightly Business Report is not and should not be considered as investment advice.

-- watchingout4you (watchingout4you@watchinggg.xcom), February 09, 2000.


Now I know anyone reading this has to laugh at the dynamic of this conversation! The guy starts off saying maybe things will go down the crapper, so the other guy says maybe it won't, so other guy says well maybe you're right. Sorry, out of time, gotta go! Now everyone focus on the swirly thing and repeat after me: "Everything is fine. The world is beautiful. Nothing bad can happen to you" ROFLMAO!

-- Gia (laureltree7@hotmail.com), February 09, 2000.

The Fed is not, repeat, NOT, pulling in money, but cramming in more and more. This pretty much puts the lie to the notion that they were expanding the money supply solely for the purposes of Y2K cash.

One of the last things I do on my evening internet cruises is to check in on the day's action at the USA-Gold forum, where the Town Crier always reports the day's Fed action.

Please sit down and assume crash position.......ready?

Today the Fed added 21.505 billion to the banking system reserves.

"In continuation of an on-goint trend, the Fed has been looked to as the lender of last resort, providing necessary reserves to the banking system to meet reserve-maintenance requirements, swapping funds in exchange for collateral held by the banking system. In the biggest operation in a long time, the Fed added 21.505 billion in the following breakdown:

$6.5 billion through overnight system repurchase agreements;

$6.015 billion through 60-day system repos; and

$8.99 billion through 90-day system RP's.

Town Crier has a link to: http://biz.yahoo.com/rf/000209/r7.html

I don't know exactly where he gets the breakdown.

Inflation anyone? Going to be the real deal this time.

In an appropriate spoof, Town Crier also posts:

THE FED ADDED 2,160 TONNES OF GOLD TO THE BULLION BANKING SYSTEM

"Using a combination of overnight, 60-day, and 90 day repurchase agreements, the Fed once again provided massive injections of gold into the bullion banking system in exchange for receiving collateral from the stressed banks in the form of gold derivatives such as futures contracts and options. Mining shares were also seen to be part of the mix in addition to gold loan backed securities."

An interesting perspective, no?

-- JIT (justintime@rightnow.net), February 09, 2000.


>From USAGold today: --------------------- In continuation of an on-going trend, the Fed has been looked to as the lender of last resort, providing necessary reserves to the banking system to meet reserve-maintenance requirements, swapping funds in exchange for collateral held by the banking system. In the biggest operation in a long time, the Fed added $21.505 billion in the following breakdown:

$6.500 billion through overnight system repurchase agreements; $6.015 billion through 60-day system repos; and $8.990 billion through 90-day system RPs. ------------------- It looks like they are not going to stop. Isn't this getting a little exessive? Any of the financial wizards here know why this huge flow of funds to the banking system continues? Y2K is over (sort of - the Alaska Air crash may have been caused by a non-compliant computer). Are there financial problems out there that we are not hearing about?

-- hmmmmm (hmmm@hmmmmmm.xcom), February 09, 2000.


Besides the sheer magnitude of the amounts reported, two phrases caught my attention: "reserve maintenance requirements" and "gold derivatives".

We were hearing a day or two back about one of the large Street houses in a very bad way. And we were hearing about a possible emergency Fed meeting. Perhaps this is both confirmation and the Fed first response?

-- Redeye in Ohio (cannot@work.com), February 10, 2000.



Another link that is relevant:

Pictures of a Stock Market Mania

Newman states that, "We have attempted for months to illustrate how the major indexes have become total frauds having little or nothing to do with the performance of the overall U.S. stock market. We can't understand why this focus has been ignored outside our analysis, other than ignorance, but we can imagine the answer is bliss. Let us repeat our claim - the major U.S. stock market indexes do not portray the condition of the U.S. stock market." And further, "75% of the gains have been the result of the performance of only ten issues." More at link.

-- Susie (susie0884@aol.com), February 10, 2000.


This is an article from around January 30. Which is true -- is the Fed increasing or decreasing the money supply? Or did the Fed take a lot of money out but then change their minds and put it back in?

http://www.nypost.com/business/23290.htm

http://www.nypost.com/business/23290.htm

FED CLOSING OFF CASH FLOODGATES By JOHN CRUEDELE

The Federal Reserve is already getting tough.

While everyone is waiting for next week's inevitable rate hike and worrying about Alan Greenspan's spiel to Congress on Wednesday, the Fed has been quietly making money harder to come by.

Two weeks ago the broadest measure of the nation's money supply dropped by nearly $57 billion. And while there was a slight increase in the M3 money supply announced yesterday, there was a huge drop of $12 billion in cash the Fed planted in banks for the Y2K emergency that never happened.

This is important stuff for anyone thinking of borrowing.

If banks have a lot of money on hand, they are likely to freely lend it out. Companies can get loans without a problem. Consumers can borrow. Speculators can grab a bunch of dough and put it into the stock market.

In the last three months of 1999, the Fed pumped more than $250 billion extra into banks for Y2K. And Fed credit -- which one source called the Federal Reserve's balance sheet -- jumped an astounding 39 percent.

Now the money is coming out. There'll be less money to borrow. Banks will be tighter. The cash that can be bet on the stock market will be less.

But there's an upside to the Fed's actions.

Because it is draining off these emergency funds, the credit markets should be a lot less worried about the Fed's diligence over inflation. But the money has to be taken out carefully.

"They are taking out in dribs and drabs what they poured in with a fire hose," says Michael Belking, a money markets expert. "If they take it out too fast, the financial markets will shatter."

-- (watchin@and.observin), February 10, 2000.


Moderation questions? read the FAQ