What I meant to say was bond YIELDS declining.
In the previous post, I stated the opposite.
Saturday, July 21, 2007
Friday, June 15, 2007
I'll Be Damned - Gold Loses its Luster
Pondering the latest market news - described below - I finallly came to the conclusion that the gold market is out of synchronization with the rest of the financial markets.
The only explanation that makes sense is massive selling of gold.
In the decades since Paul Volcker destroyed and bankrupted the Hunt Brothers when they attempted to corner the silver market back in the 70s and 80s, the world has changed.
No one thinks inflation is coming back, and that's what the gold market is telling us.
Inflation is deader today than ever before in human history.
No longer will a flood of bullion lead to inflation as its done for thousands of years.
Now that money is a pure fiat with government control, and now that money growth is published weekly, the monetary authorities will never again fool the markets about inflation.
So, what we're observing is the sale of gold.
That's it.
As soon as the markets realize this, we're off to the races again, with bond prices declining, and stock prices rising.
The only question is whether the Fed will now lower short-term rates.
STRATEGY
Be very careful here, and be prepared for the Fed to lower rates.
The only explanation that makes sense is massive selling of gold.
In the decades since Paul Volcker destroyed and bankrupted the Hunt Brothers when they attempted to corner the silver market back in the 70s and 80s, the world has changed.
No one thinks inflation is coming back, and that's what the gold market is telling us.
Inflation is deader today than ever before in human history.
No longer will a flood of bullion lead to inflation as its done for thousands of years.
Now that money is a pure fiat with government control, and now that money growth is published weekly, the monetary authorities will never again fool the markets about inflation.
So, what we're observing is the sale of gold.
That's it.
As soon as the markets realize this, we're off to the races again, with bond prices declining, and stock prices rising.
The only question is whether the Fed will now lower short-term rates.
STRATEGY
Be very careful here, and be prepared for the Fed to lower rates.
Saturday, June 09, 2007
Bond and Gold Prices Plummet
This is a puzzle.
Money is growing more rapidly with each passing week as banks expand lending.
This should send bond prices lower - they are.
Stock prices should fall - they did.
But, gold prices should soar - they didn't.
What is going on?
Here are the relevant charts.
MONEY SUPPLY
BOND FUTURES
GOLD FUTURES
WHAT WILL THE FED DO?
The markets are confused, and not telling a consistent story.
Unless the Fed is about to raise short term rates. That's the only answer that makes sense.
Stay tuned.
TACTICS
Prudence is still the watchword. Reduce the size of the book, put all new money in the short end of the curve, and expand money market arbitrage.
Long term assets must have a profitable spread, or don't do it.
STRATEGY
Tell the Board and Senior Management we're in for a long, difficult period.
Reduce expectations, and build capital.
Money is growing more rapidly with each passing week as banks expand lending.
This should send bond prices lower - they are.
Stock prices should fall - they did.
But, gold prices should soar - they didn't.
What is going on?
Here are the relevant charts.
MONEY SUPPLY
BOND FUTURES
GOLD FUTURES
WHAT WILL THE FED DO?
The markets are confused, and not telling a consistent story.
Unless the Fed is about to raise short term rates. That's the only answer that makes sense.
Stay tuned.
TACTICS
Prudence is still the watchword. Reduce the size of the book, put all new money in the short end of the curve, and expand money market arbitrage.
Long term assets must have a profitable spread, or don't do it.
STRATEGY
Tell the Board and Senior Management we're in for a long, difficult period.
Reduce expectations, and build capital.
Saturday, June 02, 2007
Bonds Break Support
As the chart below shows, sellers are dominating the bond market right now.
Gold is still in a trading range.
Money is still growing.
Bonds have broken support and must be sold.
TACTICS
Continue to shrink the book, and put all new business into Money Market Arbitrage.
When making long term loans, make sure of both spread and credit quality.
Don't expect the Fed to lower short-term rates any time soon.
We expected the Fed to consider easing sometime this Summer, but with bond prices falling, there is little chance the Fed will lower the funds target.
STRATEGY
Warn the Board. Something is driving long rates up.
Gold is still in a trading range.
Money is still growing.
Bonds have broken support and must be sold.
TACTICS
Continue to shrink the book, and put all new business into Money Market Arbitrage.
When making long term loans, make sure of both spread and credit quality.
Don't expect the Fed to lower short-term rates any time soon.
We expected the Fed to consider easing sometime this Summer, but with bond prices falling, there is little chance the Fed will lower the funds target.
STRATEGY
Warn the Board. Something is driving long rates up.
Wednesday, May 23, 2007
Stock markets making new highs
In the month since the end of the correction, all major stock market indexes have surged to new highs.
The bull market is intact and will move higher in the months and years to come.
Get long and get rich.
STOCK PRICE INDEXES
First, the New York Stock Exchange Composite
Second, the S&P 500
Finally, the Nasdaq 100
GOLD
Gold prices are a puzzle. I would expect them to be surging with bonds falling.
BONDS
Bonds are at major support. The gold charts suggest this is the time to buy bonds.
The bull market is intact and will move higher in the months and years to come.
Get long and get rich.
STOCK PRICE INDEXES
First, the New York Stock Exchange Composite
Second, the S&P 500
Finally, the Nasdaq 100
GOLD
Gold prices are a puzzle. I would expect them to be surging with bonds falling.
BONDS
Bonds are at major support. The gold charts suggest this is the time to buy bonds.
Friday, April 27, 2007
Bank Lending Surges
The basic money number, MZM, continues to surge, growing faster each month.
The Fed is not the problem, for a change. As this chart shows, the monetary base is not growing, so it must be bank lending.
At some point, the economy will slow, and so will lending, but for now, the Fed cannot lower rates or willl risk reigniting inflation.
GOLD PRICES
Gold prices are finding resistence at $700 an ounce - the highs of July 2007 - and should punch through with these latest money numbers. It's time for caution.
The old highs of $780 an ounce are easily within reach.
If gold surges to new highs, the Fed will be tempted to raise - not lower - short term rates. They will have no choice.
BOND PIRCES
Bond prices bounced these past weeks, but are in a longer term decline, signaling inflation worries.
This is just another indicator of the problems the Fed is facing. Raising short term rates must be in the mind of every inflation fighter on the Board of Governors.
The Fed is not the problem, for a change. As this chart shows, the monetary base is not growing, so it must be bank lending.
At some point, the economy will slow, and so will lending, but for now, the Fed cannot lower rates or willl risk reigniting inflation.
GOLD PRICES
Gold prices are finding resistence at $700 an ounce - the highs of July 2007 - and should punch through with these latest money numbers. It's time for caution.
The old highs of $780 an ounce are easily within reach.
If gold surges to new highs, the Fed will be tempted to raise - not lower - short term rates. They will have no choice.
BOND PIRCES
Bond prices bounced these past weeks, but are in a longer term decline, signaling inflation worries.
This is just another indicator of the problems the Fed is facing. Raising short term rates must be in the mind of every inflation fighter on the Board of Governors.
Friday, April 13, 2007
Correction is Over
As the chart of the NYSE Composite shows, the correction is over.
Prices make a double bottom
Trade up through resistance
Fed warns against inflation
Fed won't lower short rates any time soon
Stock prices retreat for one day
Prices make new highs for the move.
This correction is over.
Time to get back in the market and put that new money to work.
Prices make a double bottom
Trade up through resistance
Fed warns against inflation
Fed won't lower short rates any time soon
Stock prices retreat for one day
Prices make new highs for the move.
This correction is over.
Time to get back in the market and put that new money to work.
Sunday, April 08, 2007
Money Growth Continues
As the chart below shows, money growth continues, so don't expect any relief from high short term rates any time soon.
Gold prices are not falling and bond prices are. Be careful.
The stock market is sitting at resistance, waiting for this correction to resolve. Right now, it looks like the damage has been done, and the correction is over. We will know in a few weeks.
TACTICS
Stay away from long term assets unless they are perfectly matched. Continue money market arbitrage.
STRATECY
Steady as she goes.
Gold prices are not falling and bond prices are. Be careful.
The stock market is sitting at resistance, waiting for this correction to resolve. Right now, it looks like the damage has been done, and the correction is over. We will know in a few weeks.
TACTICS
Stay away from long term assets unless they are perfectly matched. Continue money market arbitrage.
STRATECY
Steady as she goes.
Saturday, March 31, 2007
Money Growth Puts the Fed in a Box
As the chart below shows. MZM continues to grow, punching through the 6% level for year on year growth.
The Fed would like to address the looming slowdown by cutting Fed Funds, but can't.
Gold prices are rising, and bond prices falling, both potential signs of growing inflation.
STOCK MARKET WARNING
The danger here is for investors to shun the stock market.
First, new money will go into short-term debt instruments, not stocks.
Second, speculative long positions will be closed out.
Third, if prices drop below the big volume days around Feb 27th this will be a major sign of weakness and new short postitions will be established.
TACTICS
No new long term assets unless matched by liabilities with a good spread.
Expand money market arbitrage.
Lengthen liabilities on major weakness.
STRATEGY
Warn senior management and the Board of the potential for continued high short-term interest rates.
Consider buying puts or establishing short postitions in the futures market.
The Fed would like to address the looming slowdown by cutting Fed Funds, but can't.
Gold prices are rising, and bond prices falling, both potential signs of growing inflation.
STOCK MARKET WARNING
The danger here is for investors to shun the stock market.
First, new money will go into short-term debt instruments, not stocks.
Second, speculative long positions will be closed out.
Third, if prices drop below the big volume days around Feb 27th this will be a major sign of weakness and new short postitions will be established.
TACTICS
No new long term assets unless matched by liabilities with a good spread.
Expand money market arbitrage.
Lengthen liabilities on major weakness.
STRATEGY
Warn senior management and the Board of the potential for continued high short-term interest rates.
Consider buying puts or establishing short postitions in the futures market.
Saturday, March 17, 2007
Stocks in Dangerous Ground
As the weekly chart below shows, the current correction is stalled, waiting for new positions from investors.
First, notice the big volume day of February. Since then, prices have made new lows each week, but have closed strongly. This is a neutral sign.
Second, notice prices have retreated both of the last two weeks after reaching the same price level. This means sellers are waiting at that level.
Finally, the downward revisions to GDP are telling investors to beware, a slowdown might be coming. The Fed program to slow bank lending might be working.
In the face of a potential slowdown in the US economy, the Fed would like to cut short term rates.
GOLD
Gold prices are signaling potential inflation.
This is the market the Fed watches. Recall the peak in gold prices coincided with the end of the rise in Fed Funds. At the same time, the current rally in bond prices began.
Notice prices have not made new lows since the low of $560 in 2006.
With potential inflation looming, the Fed cannot cut short term rates.
MONEY
The Fed has been raising short term rates since the middle of 2002 and money growth slowed dramatically at first, from 20% to a low growth rate near zero in 2005.
Here's the problem: since the trough in growth rates in 2005, money began to grow again, and continues to grow at faster rates - 6% in the latest data.
This has to be troublesome for the Fed.
With money growth this strong, the Fed cannot cut short term rates.
TACTICS
Stay out of the stock and bond markets.
Stick with money market arbitrage. It's safe and profitable.
Lengthen liability maturities as rates allow.
Continue to shorten asset maturities. Place all new cash in Fed Funds and other short term instruments.
STRATEGY
Tell the board things are under control.
The spread continues to widen, making the bank more profitable.
The portfolio is nearly balanced, assets are over-weighted in the short end of the curve, and no hedging is required.
First, notice the big volume day of February. Since then, prices have made new lows each week, but have closed strongly. This is a neutral sign.
Second, notice prices have retreated both of the last two weeks after reaching the same price level. This means sellers are waiting at that level.
Finally, the downward revisions to GDP are telling investors to beware, a slowdown might be coming. The Fed program to slow bank lending might be working.
In the face of a potential slowdown in the US economy, the Fed would like to cut short term rates.
GOLD
Gold prices are signaling potential inflation.
This is the market the Fed watches. Recall the peak in gold prices coincided with the end of the rise in Fed Funds. At the same time, the current rally in bond prices began.
Notice prices have not made new lows since the low of $560 in 2006.
With potential inflation looming, the Fed cannot cut short term rates.
MONEY
The Fed has been raising short term rates since the middle of 2002 and money growth slowed dramatically at first, from 20% to a low growth rate near zero in 2005.
Here's the problem: since the trough in growth rates in 2005, money began to grow again, and continues to grow at faster rates - 6% in the latest data.
This has to be troublesome for the Fed.
With money growth this strong, the Fed cannot cut short term rates.
TACTICS
Stay out of the stock and bond markets.
Stick with money market arbitrage. It's safe and profitable.
Lengthen liability maturities as rates allow.
Continue to shorten asset maturities. Place all new cash in Fed Funds and other short term instruments.
STRATEGY
Tell the board things are under control.
The spread continues to widen, making the bank more profitable.
The portfolio is nearly balanced, assets are over-weighted in the short end of the curve, and no hedging is required.
Tuesday, March 13, 2007
Stock Market Headed Lower?
The rest of this week will tell investors what's happening, and it doesn't look good.
As the chart below shows, the danger now is a significant move down.
Prices have risen 4 out of the last five days, and could not get above the big volume day of February 27th.
Prices are now headed lower and technical traders will sell this market as prices drop below the lows of the 27th.
As the chart below shows, the danger now is a significant move down.
Prices have risen 4 out of the last five days, and could not get above the big volume day of February 27th.
Prices are now headed lower and technical traders will sell this market as prices drop below the lows of the 27th.
Tuesday, March 06, 2007
Storm Strengthens
VOLUME yesterday was not enough to say this decline is over.
BEWARE the continuing fall in stock prices.
DO NOT add new money to the stock market.
STAND BY for continuing updates.
BEWARE the continuing fall in stock prices.
DO NOT add new money to the stock market.
STAND BY for continuing updates.
Monday, March 05, 2007
STOCK MARKET WARNING - HURRICANE
Stocks made new lows, and closed at the low.
If volume was light, this could mean a prolonged correction.
The Fed has a habit of doing this.
KEEP YOUR POWDER DRY.
Fed funds will yield a riskless 5.25%. Take it
With today's price action, the technical traders will be licking their lips and fighting for a place in the pit to see this market and sell it if it goes south.
If we continue down for many more days, we will be below the large volume days of the last week in February, and that will become resistance.
The Techs will attack the NYA every time it pokes into resistance.
That will make it harder to bounce back.
Summary
We are still in a bull market, don't worry, but this could get ugly.
If volume was light, this could mean a prolonged correction.
The Fed has a habit of doing this.
KEEP YOUR POWDER DRY.
Fed funds will yield a riskless 5.25%. Take it
With today's price action, the technical traders will be licking their lips and fighting for a place in the pit to see this market and sell it if it goes south.
If we continue down for many more days, we will be below the large volume days of the last week in February, and that will become resistance.
The Techs will attack the NYA every time it pokes into resistance.
That will make it harder to bounce back.
Summary
We are still in a bull market, don't worry, but this could get ugly.
Friday, March 02, 2007
Gold Falls to $646
Late Friday, March 2nd, gold broke support, closing at $646.
This is good news for everyone.
This is good news for everyone.
Be Careful Here
VOLATILITY!
In the past two weeks we've seen volatility in gold, bonds, and stocks.
Something is going on be very careful.
This post was written before market close on Friday.
GOLD
NOTICE - Volatility started Wednesday the 21st of February and has continued, with prices falling a week later on the 28th, and then breaking support and making new lows on Friday the 2nd of March.
BONDS
NOTICE - Bonds began their recent climb at the end of January, and spiked on Tuesay the 27th of February.
STOCKS
NOTICE - Stocks broke on Tuesday the 27th while bonds were spiking.
In the past two weeks we've seen volatility in gold, bonds, and stocks.
Something is going on be very careful.
This post was written before market close on Friday.
GOLD
NOTICE - Volatility started Wednesday the 21st of February and has continued, with prices falling a week later on the 28th, and then breaking support and making new lows on Friday the 2nd of March.
BONDS
NOTICE - Bonds began their recent climb at the end of January, and spiked on Tuesay the 27th of February.
STOCKS
NOTICE - Stocks broke on Tuesday the 27th while bonds were spiking.
Wednesday, January 24, 2007
Bonds back at support
Since the last report, bond prices have steadily risen to 115 and then declined to 110, bringing prices back to the same levels of last October.
Time to buy again? Prices are at support. Time to sell if support breaks?
The answer to the first question is no more buying long term assets.
The answer to the second question is yes, sell if bonds break major support.
Money Market Arbitrage is the tactic of choice.
First, we look at the gold market.
GOLD FUTURES PRICES
Notice gold spiked back in June of 2006 and has stabilized at the $620 level and shows no sign of breaking out of this range.
Next, examine the money supply,
MONEY SUPPLY - MZM
Here we have troubling information. The money supply is still growing at an accelerating rate.
These numbers signal to both bonds and gold inflation is still a risk.
For this reason alone, it is prudent to keep an eye on the details of money growth.
What has the Fed been doing with the Monetary Base?
ST. LOUIS ADJUSTED MONETARY BASE
Base growth is declining, showing Fed restraint.
What have commercial banks been doing?
COMMERCIAL AND INDUSTRIAL LOANS
Here's the answer. Demand for credit is still running at 10% per year - even with Fed Funds at 5.25%!
This is a strong economy, with strond demands for credit, leading to strong growth in money.
If money growth is not met by equally strong growth in economic activity, inflation results.
How is the economy growing?
GDP - YEAR OVER YEAR CHANGES
The economy is growing nicely at the 6% level - year over year. No cause for alarm here. If money growth is 5% and economic growth is in the 6% range, there is no cause for alarm.
Is there reason for prudence? Or, should lenders and investors take this as another buying opportunity?
The alternatives are either long bonds or Fed Funds at 5.25%.
This chart looks at 30 year bonds for the recent past.
30 YEAR US TREASURY SECURITIES
Bond yields are still in the 5% range, but Fed Funds are higher.
Until the Fed decides to cut short-term rates, or until loan demand starts to slow, the prudent thing for an investor is to put extra cash to work in Money Market Arbitrage.
Time to buy again? Prices are at support. Time to sell if support breaks?
The answer to the first question is no more buying long term assets.
The answer to the second question is yes, sell if bonds break major support.
Money Market Arbitrage is the tactic of choice.
First, we look at the gold market.
GOLD FUTURES PRICES
Notice gold spiked back in June of 2006 and has stabilized at the $620 level and shows no sign of breaking out of this range.
Next, examine the money supply,
MONEY SUPPLY - MZM
Here we have troubling information. The money supply is still growing at an accelerating rate.
These numbers signal to both bonds and gold inflation is still a risk.
For this reason alone, it is prudent to keep an eye on the details of money growth.
What has the Fed been doing with the Monetary Base?
ST. LOUIS ADJUSTED MONETARY BASE
Base growth is declining, showing Fed restraint.
What have commercial banks been doing?
COMMERCIAL AND INDUSTRIAL LOANS
Here's the answer. Demand for credit is still running at 10% per year - even with Fed Funds at 5.25%!
This is a strong economy, with strond demands for credit, leading to strong growth in money.
If money growth is not met by equally strong growth in economic activity, inflation results.
How is the economy growing?
GDP - YEAR OVER YEAR CHANGES
The economy is growing nicely at the 6% level - year over year. No cause for alarm here. If money growth is 5% and economic growth is in the 6% range, there is no cause for alarm.
Is there reason for prudence? Or, should lenders and investors take this as another buying opportunity?
The alternatives are either long bonds or Fed Funds at 5.25%.
This chart looks at 30 year bonds for the recent past.
30 YEAR US TREASURY SECURITIES
Bond yields are still in the 5% range, but Fed Funds are higher.
Until the Fed decides to cut short-term rates, or until loan demand starts to slow, the prudent thing for an investor is to put extra cash to work in Money Market Arbitrage.
Monday, October 16, 2006
Buying Opportunity in Bonds
Rarely does a market give a clear buy signal, but the US Treasury market is doing so today.
As the chart below shows, prices have broken out decisively through record volume, and returned to the breakout level to find support.
The weekly charts are clearer still. Here is a market that's made a double bottom, pushed up to resistance, found record volume, and pushed to new highs for the move.
It's time to add long-term fixed rate assets to the portfolio.
Gold prices are tamed, as the chart below shows. Inflation is no longer a worry.
TACTICS
Continue money market arbitrage. This will continue to be a money maker for at least another six months.
Begin adding long-term fixed rate assets with shorter-term liabilities.
Stop lengthening liability maturities.
STRATEGY
Inform senior management that the bear market in bonds is over.
The next Fed move will be to lower interest rates.
Be prepared for a long bull market in bonds: several years at least.
Reduce hedging programs, but continue to take advantage of yield spikes like the current one. They will come again, and are an excellent opportunity to add high-yielding assets.
As the chart below shows, prices have broken out decisively through record volume, and returned to the breakout level to find support.
The weekly charts are clearer still. Here is a market that's made a double bottom, pushed up to resistance, found record volume, and pushed to new highs for the move.
It's time to add long-term fixed rate assets to the portfolio.
Gold prices are tamed, as the chart below shows. Inflation is no longer a worry.
TACTICS
Continue money market arbitrage. This will continue to be a money maker for at least another six months.
Begin adding long-term fixed rate assets with shorter-term liabilities.
Stop lengthening liability maturities.
STRATEGY
Inform senior management that the bear market in bonds is over.
The next Fed move will be to lower interest rates.
Be prepared for a long bull market in bonds: several years at least.
Reduce hedging programs, but continue to take advantage of yield spikes like the current one. They will come again, and are an excellent opportunity to add high-yielding assets.
Monday, October 02, 2006
Bear Market is Over!
The bear market in bonds began in March of 2006 and ended in September of the same year.
This must be one of the shortest bear markets in history.
As the daily chart below shows, bond prices blasted through resistance and are consolidating at higher levels.
WEEKLY PRICE ACTION
The chart below is weekly price action and shows clearly that we've surged through the price levels we saw in March.
The bear market is over.
TACTICS
- Continue money market arbitrage.
- Cover long term liabilities with longer term assets
- Prepare options and futures programs for price volatility
- Warn the board and senior management
STRATEGY
In a climate of uncertainty, it's best to be prudent, and this is a time like that. Do not overplay the end of the bear market.
Reduce the warning level to neutral, and let the subject sit for a few months. The Fed is in no hurry to lower rates, and will probably do nothing till 2007, when signs of slower economic growth might arise.
The money numbers tell us the future of the economy is sound.
Gold prices tell us inflationary expectations are crushed.
Bank's are lending on commercial real estate, which contains no prepayment option, thus locking in long-term yields.
There will be powerful profit opportunities in futures and options. Educate senior management and the Board, and prepare them for some hedging. Contact outside consultants on this issue.
This must be one of the shortest bear markets in history.
As the daily chart below shows, bond prices blasted through resistance and are consolidating at higher levels.
WEEKLY PRICE ACTION
The chart below is weekly price action and shows clearly that we've surged through the price levels we saw in March.
The bear market is over.
TACTICS
- Continue money market arbitrage.
- Cover long term liabilities with longer term assets
- Prepare options and futures programs for price volatility
- Warn the board and senior management
STRATEGY
In a climate of uncertainty, it's best to be prudent, and this is a time like that. Do not overplay the end of the bear market.
Reduce the warning level to neutral, and let the subject sit for a few months. The Fed is in no hurry to lower rates, and will probably do nothing till 2007, when signs of slower economic growth might arise.
The money numbers tell us the future of the economy is sound.
Gold prices tell us inflationary expectations are crushed.
Bank's are lending on commercial real estate, which contains no prepayment option, thus locking in long-term yields.
There will be powerful profit opportunities in futures and options. Educate senior management and the Board, and prepare them for some hedging. Contact outside consultants on this issue.
Wednesday, September 20, 2006
Time to Widen the Fed Funds Band!
SUGGESTION:
Decrease Fed open market operations.
Allow overnight rates to fluctuate more than they do now.
Stop intervening in the markets except for permanent additions to the stock of money.
Increase the band sround the Fed Funds rate which causes the Fed to supply or drain funds.
REASONING
Look carefully at the changes in the basic money supply and you see volatility. Nothing but volatility.
Look carefully at the Fed Funds rate and you see stability. Nothing but stability.
To an economist, this is clear evidence of meddling by the Federal Reserve Bank's Open Market committee.
It's a misguided policy of interest rate stability; also called price controls. This is the last vestige of an obsolete activity.
Now that the economy has stabilized, it's time to let the market allocate overnight loans, rather than the OMC.
Let the Fed Funds rate fluctuate, as exchange rates do; as long-term interest rates do; as oil and gold prices do.
There will be no adverse effects if they widen the band around which the OMC performs open market operations and et short term interest rates fluctuate.
It's time for the Board of Governors to instruct the OMC to widen the bands on the Fed Funds target rate to at least one percentage point around the target rate each year until controls are ended.
Decrease Fed open market operations.
Allow overnight rates to fluctuate more than they do now.
Stop intervening in the markets except for permanent additions to the stock of money.
Increase the band sround the Fed Funds rate which causes the Fed to supply or drain funds.
REASONING
Look carefully at the changes in the basic money supply and you see volatility. Nothing but volatility.
Look carefully at the Fed Funds rate and you see stability. Nothing but stability.
To an economist, this is clear evidence of meddling by the Federal Reserve Bank's Open Market committee.
It's a misguided policy of interest rate stability; also called price controls. This is the last vestige of an obsolete activity.
Now that the economy has stabilized, it's time to let the market allocate overnight loans, rather than the OMC.
Let the Fed Funds rate fluctuate, as exchange rates do; as long-term interest rates do; as oil and gold prices do.
There will be no adverse effects if they widen the band around which the OMC performs open market operations and et short term interest rates fluctuate.
It's time for the Board of Governors to instruct the OMC to widen the bands on the Fed Funds target rate to at least one percentage point around the target rate each year until controls are ended.
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