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The responses to this thread seem to be missing a crucial part of
Milton Friedman's work:
Money Supply * VELOCITY OF MONEY = GOODS AND SERVICES * Price
Rising or falling money supply alone does not mean expansion or
contraction of prices.
Changes in "velocity of money" or "goods and services" can negate the
impact of rising or falling money supply. Therefore, a simple chart
that correlates money supply and stock valuations has limited value.
Unless you know the corresponding "velocity of money" and "goods and
services", you don't know the final impact on prices.
Ross Kovacs
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From: Gwenn Ael Gautier[SMTP:Gw.Gautier@xxxxxxxxxx]
Sent: Thursday, June 11, 1998 4:26 PM
To: johnstev@xxxxxxxxxxxxxxxxxxx; johnstev@xxxxxxxxxxxxxxxxxxx
Cc: RealTraders Discussion Group; RealTraders Discussion Group
Subject: Money supply vs DJ
Anyone having a chart showing the potential correlation between money
supply
and stock valuations?
Is there one? what prompts people to invest is when they have extra
money. What
prompts them to sell, is when they don't have enough. of course there
are the
short term panics etc, but long term isn't it what is happening in
Japan:
People had too much until 1989, and now not enough at all...
In the US, now people have "too much", and are "forced" to invest. So
all there
should be to watch is signs there will not be enough. Typically one
starts
lacking money when returns or revenues drop and you need to pull
equity, or
when you are already overextended. You have then to liquidate some,
but if
several are in the same situation, whom do you sell to? Hence lower
prices.
Interestingly, with the Asian story on, corporate profits should
stagnate at
best. Also with Europe showing more strength, there is more
competition as
well. These are not good signs
Very often, there is one last fake rally that pulls the last
passengers in,
those, that had resisted up to then. Today, these are most likely
people who
have sold too early because of similar earlier concerns, and elect now
to get
back in. I don't know, but I haven't had this feeling yet, although we
might
beclose to it.
Longer term, there is no doubt in my mind, the PC revolution is as big
as the
invention of script. We haven't seen anything at all yet. But like for
all
major major changes in global life styles, there should be again big
turmoil,
including highly volatile stock prices. My best guess is we will
fluctuate
erratically between 5.000 and 10.000 on the DJ for the next ten years
or
more... So many opportunities!!!
BTW, I am no CTA, not registered, and not solvent anyway in case
someone wants
to sue me for a million $ because my vision was wrong... Too bad for
him, I
couldn't care less!
:-))
Gwenn
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