| If Tokyo matters at all any more, it just might happen sooner
rather than later. Just heard a totally unconfirmed rumor that
the Nikkei dropped more than 800 points today (over 4%) under
heavy trading.
I wonder if Wall Street is going to brush this off as irrevelant
as usual, tomorrow. In any case, I'm quite relieved about having
pulled all of my SAVE money into cash as of today's close.
Ganesh.
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Apparently last Thursday the WSJ contained an article which said that
the Fed Open Market Committee and Alan Greenspan were giving less
emphasis to slow M2 and M3 growth. According to Randall Forsyth in
Barron's this week,
"The Fed's emphasis on money supply as a key policy variable has
waxed and waned over the years. But if the FOMC has indeed decided
to downplay the persistently weak growth of the broader monetary
aggregates, it would mark a stunning reversal. Just last month,
when the Fed engineered its most recent easing, Greenspan and
other Fed officials emphasized below-target M2 and M3 as the
primary reason. (That may have been to deflect attention from the
importance of the Tokyo-led global equity plunge in the decision
to ease.)"
Even before this, I was never clear about how to interpret M2
statistics, now it's less clear.
If M2 is growing at a low rate, that indicates either a lack of demand
for loans or an unwillingness/inability to make loans on the part of the
banks, and is generally viewed as a bearish signal. On the other hand,
if the Fed responds to this by easing rates, isn't this a bullish signal
for both bonds and stocks in the short term? Historically, low M2 growth
has resulted in poor stock price performance, but I'm not sure that the
Fed has always played such a controlling role in the market (though this
may be the case).
And if the Fed is placing less importance on M2/M3, what will it be
replaced by? Fed funds rate targets?
Can anyone shed some light on this area?
/Jim
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