11 replies to this topic

[blustar]

I have been reading that liquidity is drying up lately. I believe this will be bad for stocks and gold and good for the dollar and bonds. blustar

[fib_1618]

Hi Blustar Yes, I have been hearing and reading about this as well on many fronts with M2 and M3 being used as a basis of such observations. And in this regard, this is true - but it is the context of this truth that actually needs to be explored. As an analogy, when you're racing down the street at 100 mph, and slow down to 50 mph, this only suggests that you're still going forward but not as rapidly as before. So though the rate of change in the expansion of money supply is slowing (and does anyway as things get to a point of over satuation), it's definately not slowing down enough to really be a concern at this juncture. Something like this will only slow the pace of an equity advance - and allow possible deeper corrections - but in no way would this terminate the progress in which this type of liquidity allows the markets to maintain it's bouyancy. In stocks, you can see it in the cumulative charts, but in gold, you will see it in the way the price remains resilent to price pull backs. With respect to gold, gold will tend to move higher as long as the cost of money remains lower than the actual inflation in which money represents - economically speaking. And with Tuesday's Fed statement, and their perception of what is really important, so long as they maintain this stance, the entire finanical system will benefit from such policies. I'm sorry for skirting over the issue here, but time doesn't allow me to go into more detail at this time. But I hope you get the point I was trying to convey. Oh yea... one more thing - we need to find a way to get you to post some charts with your posts for additional clarity. If I can be of assistance, please feel free to e-mail me privately. Take care Fib