From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #222 Reply-To: canslim Sender: owner-canslim-digest@lists.xmission.com Errors-To: owner-canslim-digest@lists.xmission.com Precedence: bulk X-No-Archive: yes canslim-digest Saturday, May 2 1998 Volume 02 : Number 222 In this issue: [CANSLIM] WON guest appearance Re: [CANSLIM] MDLK [CANSLIM] Re:Worley on STRL, ABDR, NRVH Re: [CANSLIM] Re:Worley on STRL, ABDR, NRVH Re: [CANSLIM] WSTF [CANSLIM] Austin's watch list of last week [CANSLIM] High tight flag [CANSLIM] LLUR Scan? [CANSLIM] Whatever Tom, he has gained in return. Re: [CANSLIM] Whatever Tom, he has gained in return. Re: [CANSLIM] Whatever Tom, he has gained in return. Re: [CANSLIM] LLUR Scan? [CANSLIM] Interesting OBV/MF Chart Re: [CANSLIM] Interesting OBV/MF Chart [CANSLIM] Conjunction of OBV/MF and EMA Re: [CANSLIM] Interesting OBV/MF Chart Re: [CANSLIM] Austin's watch list of last week Re: [CANSLIM] LLUR Scan? [CANSLIM] Money Supply ---------------------------------------------------------------------- Date: Sat, 02 May 1998 14:02:44 -0400 From: Tom Worley Subject: [CANSLIM] WON guest appearance For those that may not subscribe to IBD, or missed the ad, Wm O'Neill will host an online discussion "Investment Research and Decision Making" courtesy of Schwab on Tuesday, May 5, at 9PM EST. All investors are welcome at no cost. However, you need to visit these web locations beforehand to download the software. www.excite.com/schwabforums www.armchairmillionaire.com/ibd I tried the first, and was not able to access it. I then went to armchairmillionaire.com and registered, but could not then download the software (you need to do both). I will keep trying. Tom W - - ------------------------------ Date: Sat, 02 May 1998 14:45:38 -0400 From: Tony Austin Subject: Re: [CANSLIM] MDLK copy of your post.... >From my view, it was looking very possitive up until mid-day on Friday, then somebody enough shares to turn things negative. thanks Tony - ---------- > From: Connie Mack Rea > To: canslim@lists.xmission.com > Subject: Re: [CANSLIM] MDLK > Date: Friday, May 01, 1998 4:33 PM > > Members-- > > May I offer a comment on MDLK and commissions. > > MDLK has OBV/MF positive divergence that began about two weeks ago and > exists up to the present. Do not forget that positive divergence is > like an aura surrounding a stock; it speaks of strength. What OBV/MF > does not do is provide a handle telling you when to reach for the stock. > > It is the EMA [3/7/10] that provides the handle. E.g., 6-7 days ago the > EMA said to let go of the handle that was extended at the end of the > first week of April. What you must decide, when entering or exiting, is > which of the EMA handles you will grab or let go of: the first level > handle [the 3-line passing through the 7-line, depending on whether > you're entering or exiting]; the second level [3-line through the > 10-line]; or the third level [7-line through the 10]. > > If you will pull up a 1-mos chart, you can see that the EMA said to grab > the handle on the 9th or the 13th. It said to let go on the 22nd. A > first and second level "let go" occurred on the same day, the 22nd. The > third level "let go" occurred at the end of trading on the 24th; there > may have been no opportunity to "leg go" until the next trading day, the > 27th. > > To hold on through the third level sell is to ignore your reason for > using an EMA at all. Unless something bad happens to counter the > OBV/MF, you should buy on the next EMA buy signal. > > Some have told me how much they are paying for round trips. If you're > paying more than $18 or so for round-trip market orders, you ought to > take a look at what you're paying for beyond that price. Twenty-six > dollars round-trip for limit orders is about all you should pay. I've > known several friends who wouldn't get in or get out just because they > didn't want to plop down $50-100 for commissions. They are a species > that will hold on down through a third level sell and pray for a star in > the East to lead them to a money manger. [Or should I say "money > manager"?] > > The WSJ said that the average investor/trader is in and out only three > times per month. What would three round-trips cost you? You are > spending some decent bucks just for the ride. And the less capital > you're working, the greater percentage you eat up in commissions. And > you had better be more damned right than wrong and have got in at the > bottom and out at the top many more times than not. > > If you're trading or investing $25,000, you would be pressed to convince > me that anything that a broker offered you would be something that you > would need, other than his horse. To trade that amount presumes that > you're more knowledgeable, much more knowledgeable than the average > bear. There is some dollar analogy between the size of the trader's and > investor's capital and the dependence he feels for a high commission > broker. > > I've some private queries about my stock posts today. I'll begin those > now. > > Connie Mack > > > > > > > - > - - ------------------------------ Date: Sat, 02 May 1998 14:00:57 -0500 From: Dave Cameron Subject: [CANSLIM] Re:Worley on STRL, ABDR, NRVH Tom Worley wrote: > > Some snapshot comments: > STRL - RS 59, GRS 65, in lower end of group According to DGO, the RS is 83.... Tom, Tom, Tom, you get out of the brokerage business, and already lose your edge. ;-> > ABDR - extended, needs to base Agreed... of course as I pointed out below, I've been waiting for this one to base for quite a while. > NRVH - CS elements excellent, but no growth shown in Q1 Don't follow this one. Earnings are up 103%. If you're referring to sales, it has slowed down... I dunno... 2 out of 3 that I'm not following what you're saying. Am I missing something here? Dave Cameron > > Tom W > > -----Original Message----- > From: Dave Cameron > To: canslim@lists.xmission.com > Date: Thursday, April 30, 1998 10:47 PM > Subject: [CANSLIM] STRL, ABDR, NRVH > > >I like STRL, it broke out of a nice base today. Definitely CANSLIM > >territory in terms of EPS & RS. I've owned it before a couple of > > > >ABDR looks good too - high P/E ratio, but big EPS (99) growth! I've > >been watching this one for 4 months - waiting for a base. Silly. > > > >I'm glad (so far) that I let my stops do the talking and not > >cashed in. I am concerned about NRVH though. I bought on > > - - - ------------------------------ Date: Sat, 2 May 1998 15:31:26 -0400 From: "Tom Worley" Subject: Re: [CANSLIM] Re:Worley on STRL, ABDR, NRVH Went back and checked my notes, can't blame STRL on my typo, I typed what I had written down. Don't know if I misread, or DGO was wrong that day, or just has moved that far (did check IBD for 4/30 and it shows it at an RS of 78 then). GRS now is 58 as of Friday's close. On NRVH, yes, I am referring to the slight drop in sequential qtrly revenue nrs, which was also reflected in the earnings. For me, this is a "break" in the historic pattern. If this persists, year to year comparisons become difficult quickly, and investor disappointment happens even faster. This is something I would want to research if I was considering this one. Revenues growth ultimately drive consistent earnings growth, the only other likely alternative being cost cutting measures, which I have not found reliable except for short term. Tom W - -----Original Message----- From: Dave Cameron To: canslim@lists.xmission.com Date: Saturday, May 02, 1998 3:00 PM Subject: [CANSLIM] Re:Worley on STRL, ABDR, NRVH >Tom Worley wrote: >> >> Some snapshot comments: >> STRL - RS 59, GRS 65, in lower end of group > >According to DGO, the RS is 83.... Tom, Tom, Tom, you get out >of the brokerage business, and already lose your edge. ;-> > >> NRVH - CS elements excellent, but no growth shown in Q1 > >Don't follow this one. Earnings are up 103%. If you're referring >to sales, it has slowed down... > >I dunno... 2 out of 3 that I'm not following what you're saying. >Am I missing something here? > >Dave Cameron > >> - - ------------------------------ Date: Sat, 02 May 1998 14:44:22 -0500 From: Dave Cameron Subject: Re: [CANSLIM] WSTF Also worth noting that this stock has accelerating earnings. Dave Cameron Patrick Wahl wrote: > > Western Staffing looks pretty good, although maybe a point or two too > extended. Whoever was asking what it means when people say the > volume dries up should be able to see it very clearly on this chart > over the course of the last 5 or 6 weeks, where volume was high, > dried up, then perked up again as the price emerged from a flat base. > > - - - ------------------------------ Date: Sat, 02 May 1998 15:00:49 -0500 From: Dave Cameron Subject: [CANSLIM] Austin's watch list of last week Tony Austin wrote: > > Given that I am new to this list and trading with CANSLIM, I welcome your > comments on the following. > > Long Plays > LEVL - Level One Communications. Formed a cup and handle pattern between > Nov. 97 and April 98. Broke to the upside and through upper resistance on > 4/20. Has remained in a tight range since that time currently at 31 1/4. > Given current market pressure, a tight range could be a bullish sign. > Consider and entry if 33 1/8 is seen. (Qtr earnings increases -1st qtr > back: 975,2nd:41.5,3rd:18.5,4th:0. PE - 35.) Looks very good.... needs to base again for a while, but seems to be doing that quite nicely. I like the earnings pattern. > ESL - Esterline Technology Cp. Formed a cup and handle starting mid October > through a failed breakout attempt on 4/2. Corrected down to support at 20. > Successfully broke through upper resistance to 22 on 4/22 and has > retracted the following 2 days to 20 3/8. The past 2 days may be market > driven rather than stock weakness. The bold could attempt an early entry > near 20 3/8, another break above 22 would be a very bullish sign. (1st qtr > back: 28, 2nd: 16.5, 3rd:37, 4th:0, PE - 13.7) I guess you got your sign 2 days ago! Nice call! > CTAL - Catalytica Inc. - Following eight months of consolidation in the 13 > to 10 range, it broke soundly upward with supporting volume the first week > of April to a high of 17 5/8. Following this 40% run up it corrected > downward on decreasing volume. It was taking a noticeably positive turn > confirmed with consecutive higher lows and increasing volume. This turn was > short lived as it retraced it's steps downward, with what may be a result > of the past two trading days. Watch for continuing heavy volume and a break > above 16 1/4 for a safe entry. (I have no earnings data, but stock is on > canslim.net list) Can't win 'em all... > Short Plays > WLP - Wellpoint Health Network. Go short if prices above 72 are seen. > Initial stop at 75.5, initial target at 67. > SRA - Stratus Computer Inc. Go short if numbers above 45 1/2 are seen. > Initial stop at 47 3/4, target at 31. > PSQL - Platinum Software CP. Go short if numbers above 24 are seen. Initial > stop at 25 3/8, initial target 20. > SPY - Standard & Poors Dep Rec. - short if 112 1/2 in obtained. Stop at > 118, target 100. A look at these tells me why I don't short. In general, I really like your Long Picks - and the market seems to be bearing them out. None of your shorts really dropped significantly, and some rose. If I were you, I'd take another look at your rules. Dave Cameron > > - - - ------------------------------ Date: Sat, 02 May 1998 13:56:26 PDT From: "Charles Morgan" Subject: [CANSLIM] High tight flag Hi everybody, I would like the groups opinion on high tight flags. I own a stock, (NC),in my opinion is in a high tight flag pattern. WON states in HTMMIS that this is a risky but strong pattern and many stocks can skyrocket 200% or more. I plan on holding this stock since my profits are pretty good on it. But I am more interested on the correctness(or incorrectness)of my interpretation. Also, I live near one of their plants and they are expanding and hiring about 200 employees. I view this as the company forecasting continuing growth. Chuck ______________________________________________________ Get Your Private, Free Email at http://www.hotmail.com - - ------------------------------ Date: Sat, 02 May 1998 15:33:30 -0500 From: Dave Cameron Subject: [CANSLIM] LLUR Scan? Mike, Haven't seen any of your postings on the CANSLIM group? Do you still subscribe? I thought your stuff was good. I was looking at your scan (qpscan) - can you explain the column headings again? Thanks, Dave Cameron - - ------------------------------ Date: Sat, 02 May 1998 18:33:17 -0400 From: Connie Mack Rea Subject: [CANSLIM] Whatever Tom, he has gained in return. Members-- Dave is worried about Tom. Can Tom have lost his edge? Maybe not. STRL: This, if a Canslim candidate, is also a powerful OBV/MF. There's some juice here. ABDR: No positive OBV/MF, but price is tracking nicely. NRVH: Afraid I'll have to pass here, Tom. But two of three? And not just any two of three, but a good two or three. Hey, there's money in two of three. We should all all be so luckly. Connie Mack - - ------------------------------ Date: Sat, 02 May 1998 17:46:13 -0500 From: Dave Cameron Subject: Re: [CANSLIM] Whatever Tom, he has gained in return. Connie Mack Rea wrote: > > Members-- > > Dave is worried about Tom. Can Tom have lost his edge? Actually, I initially mentioned these... Tom quickly shot back comments on each. I jokingly chided him on STRL, because he misread the RS. I didn't understand his point on NRVH. I do recall your comments on STRL - another CANSLIM stock that meets your OBV/MF criteria - posted a couple of days earlier. > > Maybe not. > > STRL: This, if a Canslim candidate, is also a powerful OBV/MF. There's > some juice here. > > ABDR: No positive OBV/MF, but price is tracking nicely. > > NRVH: Afraid I'll have to pass here, Tom. > > But two of three? And not just any two of three, but a good two or > three. Hey, there's money in two of three. We should all all be so > luckly. > > Connie Mack > > - - - ------------------------------ Date: Sat, 02 May 1998 18:57:45 -0400 From: Connie Mack Rea Subject: Re: [CANSLIM] Whatever Tom, he has gained in return. Dave-- Hell, there's enough congratulations to go around. Nice goin' Dave. Nice goin' Tom. Connie Mack Dave Cameron wrote: > Connie Mack Rea wrote: > > > > Members-- > > > > Dave is worried about Tom. Can Tom have lost his edge? > > Actually, I initially mentioned these... Tom quickly shot > back comments on each. I jokingly chided him on STRL, > because he misread the RS. I didn't understand his point > on NRVH. I do recall your comments on STRL - another > CANSLIM stock that meets your OBV/MF criteria - posted a > couple of days earlier. > > > > Maybe not. > > > > STRL: This, if a Canslim candidate, is also a powerful OBV/MF. > There's > > some juice here. > > > > ABDR: No positive OBV/MF, but price is tracking nicely. > > > > NRVH: Afraid I'll have to pass here, Tom. > > > > But two of three? And not just any two of three, but a good two or > > three. Hey, there's money in two of three. We should all all be > so > > luckly. > > > > Connie Mack > > > > - > > - - - ------------------------------ Date: Sat, 02 May 1998 17:47:13 -0500 From: Dave Cameron Subject: Re: [CANSLIM] LLUR Scan? Dave Cameron wrote: > > Mike, > > Haven't seen any of your postings on the CANSLIM group? Do > you still subscribe? I thought your stuff was good. Oops.... intended to send this to Mike Artobello after I got no reply when I mentioned his name & scan to the group. Sorry 'bout that... Dave Cameron - - ------------------------------ Date: Sat, 02 May 1998 20:09:42 -0400 From: Connie Mack Rea Subject: [CANSLIM] Interesting OBV/MF Chart Members-- Let's go flying today. Fasten your seat belts, expect turbulence, and perhaps a crash landing. This is a "flyer." This is a chase of the goose. We have spoken about stocks that are externally controlled. TSAR is such a stock. It has vacillated between 10 1/4 and 10 11/16 for over two months. A 6-mos chart shows just how controlled it has been. Some have told me that you have a problem printing BC charts when using the Print button at the top of your screen. What you have been printing is the left most part of the screen where the Time Frame is. I believe the reason is that BC uses frames. Therefore, the last frame you click is the frame printed. If you will be sure to left click on the chart and then go to Print at the top of the screen, you will get a printed chart and nothing else. Print out a 2-mos chart in BC. Draw a vertical trend line through February 27 or so; label this A. Draw another through the OBV peak in the middle of March; call this B. Draw another through the OBV peak just before the middle of April; call this C. Draw a fourth through the last day of trading; call this D. Now, in the OBV screen at the bottom, originate a horizontal trend line at the peak at the end of February; call this A1. Extend it to the peak in the middle of March; call this B1. Extend it to the peak in the middle of April. Complete the trendline by extending it across the tops to the edge of the chart; call this D1. Each of the horizontal lines should intersect at the OBV verticals [A, B, C, and D respectively]. I said that I use the 3-line EMA to draw trend lines to give smoothness. Here is an instance is in which drawing trend lines across price would be possible, but useless. Draw a trend line from the 3-line price peak where it intercepts the A vertical; call this A2. Close the trend line at the 3-line peak that appears just a couple of days in front of the C vertical; call this C2. [I have ignored marking a B2 purposely and will not mark it.] This line should be flat and extend across prices for about two months. Originate another trend line from the peak a couple of days to the right of the C vertical and extend it across the peak seven or eight days later and on to the edge of the chart. I have not marked this peak because it did not occur at C2. Call it whatever you like. I am most interested in the OBV/MF and price period to the right of the C vertical. To that period in a moment. Look at the period on the OBV line from A to B; it is rising as indicated by the trend line A1 to B1. The corollary period on the price chart is flat, hence a positive divergence. Examine the B to C period: rising on the OBV, B1 to C1, and flat on price, B2 to C2. Now, the important section. If you drew another trend line from C1 to the edge of the chart, you'd have a flat line. Contrast this flat line with the declining price trend line that begins just to the right of the C vertical and on to the edge of the chart. This is a significant positive OBV divergence. Print out a 2-mos MoneyFlow chart. I'll set some points on it and let you work with putting trend lines on the price. Not always, but in this instance, they can be the same as drawn on the first price chart. Originate a trendline, A, a few days into March that runs across the MF peaks and touches the peak in the middle of March and call this B. From B draw a line to the peak in the middle of April; call this C. From C draw a line on to the edge of the chart; call this D. The price chart is obviously the same, and the OBV and MF are nearly identical, especially for the two most important periods from mid-March to Friday's close. The positive divergences for the OBV and MF are identical and thus conjuncitvely strong. The 3-7-10 EMA gave a buy during the last hour of trading on Friday as you can best see on a 2-day 15-minute chart. Still on the 2-day, you can see that the SlowSto went strong at the end of Thursday's trading and was pasted to the top of the chart all day Friday. The MACD gave a buy Friday morning and turned up powerfully at the end of trading Friday. Volume Accumulation was steady Thursday and Friday and acknowledged what the other indicators were saying. Were we to look only at the price chart, we'd see nothing of much interest. Though Friday gave an EMA buy, there have many buys, and jerky they were What is different is the character of the OBV/MF. It has changed dramatically. Now, minus some internal bad news, this ought to be a strong stock into which entry is safe. And were we to look at volume--it's all over landscape and could make for rough flying. Here is a chance, if we're right, to see the beginning of a move away from ho-hum price vacillation of the last few months. We are only a day away from the EMA buy. I will try to buy my three lots on Monday. I'd like to be able to buy a lot at Friday's close, 10.75, another at 10.875, and a third at 11. Should the stock open lower, or go lower, I will not be afraid to start my three buys at a lower level. Connie Mack - - ------------------------------ Date: Sat, 2 May 1998 18:24:08 -0600 From: "Kent Horne" Subject: Re: [CANSLIM] Interesting OBV/MF Chart Connie, you and the other members of list will appreciate Windows 98 (I've been working with the beta release for some months) -- the print menu selection allows picking individual frames or all of the frames on the monitor screen. kent horne - - ------------------------------ Date: Sat, 02 May 1998 21:04:37 -0400 From: Connie Mack Rea Subject: [CANSLIM] Conjunction of OBV/MF and EMA Members-- UFDB has a conjunctive instance of OBV/MF positive divergence and EMA. Remember to use the 3-EMA line to draw trendlines for price. Print a 3-mos chart of MF. About the middle of March draw a vertical trendline the day before the slight MF dip; mark this A. Draw a second vertical from the last day of March; mark this B. Draw a third in the middle of April where all three EMAs converge just before the price dip down through 2.75; mark this C. Draw a final vertical near the end of May when the MF turns up once again; mark this D. On the price chart, originate a horizontal trendline where the A vertical intersects price; call this A1. Where the B vertical intersects price, call this B1. Where the extended horizontal line intersects the C and D verticals, mark these respectively C1 and D1. The MF trendline is in inclination from A to D. The price is in declination from A1 to D1. This is positive divergence for about 45 days. What is to be noted about the divergence is that it is uninterrupted and therefore more powerful than one nonuniform [interrupted]. Just as the MF starts to rise in the last three days, there is an EMA buy conjunction--a further timely and powerful technical turn. Within the price decline from A1 to D1, there is an internal decline to note. If, from C1, you will draw a second trendline down to where the 3-line EMA starts to turn up [about the 3 price line], and mark this C2, you will see that the line C1 to C2 is in steeper angle decline than is C1 and D1. This steeper decline is an indication of a still greater positive divergence. Postive pressure is building. Where C2 intersects the D vertical, there is the EMA buy at 3. What is said about the MF can be said also about OBV, which is a further implying of power because there are no interrupting patterns. Positiver pressure builds further. The OBV/MF/EMA explanation is almost an ideal pattern: a 45-day OBV/MF positive divergence, a further internal and stronger positive divergence, and an immediate upturn in conjunction with an EMA buy. The power that was building during this pattern is further manifested in the strength of the breakout: Look at the three following gap-up days--a release of extreme power. Absent some internal bad news, this stock ought to perform nicely. It is a technical picture of short term strength. I doubt that I would chase it after three up-gap days; but if there were a 1/3 or 1/2 retracement, I could get interested. Connie Mack - - ------------------------------ Date: Sat, 02 May 1998 21:08:08 -0400 From: Connie Mack Rea Subject: Re: [CANSLIM] Interesting OBV/MF Chart Kent-- Thanks for the note. So you're on the Silicon Valley inside with '98? Connie Mack Kent Horne wrote: > Connie, you and the other members of list will appreciate Windows 98 > (I've > been working with the beta release for some months) -- the print menu > selection allows picking individual frames or all of the frames on the > > monitor screen. kent horne > > - - - ------------------------------ Date: Sat, 2 May 1998 21:25:56 -0400 From: "Tony Austin" Subject: Re: [CANSLIM] Austin's watch list of last week Dave, thanks for your candor, The shorts I pick have a couple of things in common. First, I only play the short side if I am suspect of the market assisting in a correction. Second, the stocks need to be near upper resistance. My reasoning is a stock sitting high after a run up, with a week market is much more likely to go down than up. Third, the stock is showing some evidence of rounding or testing resistance. An example of a successful short pick is AFS. I called this a short candidate on 4/1. Accumulation and MS were both very negative with large volume, but no upward movement. The following few days the price moved upward and broke above resistance, not unlike what we have seen this week. I was scratching my head, it rationally shouldn't have been happening. But since that time, it confirmed my short. I would not be surprised if several of these do turn into viable shorts over the next little while. But with a possitive acting market, I'm not looking for additional shorts. As can be seen in my picks, it is often easier to see impending upward movement rather than downward, or for me anyway. But we still need to know how to go short. There may come a day that if your not short, your not making any money, > A look at these tells me why I don't short. In general, I really like > your Long Picks - and the market seems to be bearing them out. None > of your shorts really dropped significantly, and some rose. If I were > you, I'd take another look at your rules. > > Dave Cameron I'm still short DISH, it looks like it may give me a few points to the down side. But if the market come roaring back, might not pan out either. I'll post some tomorrow to watch for next week. I hope I can find a few more in line with what the list is after. But, I'm not sure I'm ready for a weekly report card...not yet. Hoping everyone is having a nice weekend. Tony - - ------------------------------ Date: Sat, 2 May 1998 18:59:36 -0700 (PDT) From: Rich Subject: Re: [CANSLIM] LLUR Scan? Dave: Mike continues to post the CARS list every week and there is a listing in the archive of the titles of each column. Let me know if you need me to check my own archive for them. Ciao, Rich - ---Dave Cameron wrote: > > Dave Cameron wrote: > > > > Mike, > > > > Haven't seen any of your postings on the CANSLIM group? Do > > you still subscribe? I thought your stuff was good. > > > Oops.... intended to send this to Mike Artobello after I > got no reply when I mentioned his name & scan to the group. > > Sorry 'bout that... > > Dave Cameron > > > - > > _________________________________________________________ DO YOU YAHOO!? Get your free @yahoo.com address at http://mail.yahoo.com - - ------------------------------ Date: Sun, 3 May 1998 14:22:26 +1200 From: "Dean Edwards" Subject: [CANSLIM] Money Supply This is a multi-part message in MIME format. - ------=_NextPart_000_000D_01BD769E.E60D8D00 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Excellent article in the Street.com detailing the connection between = money supply, inflation and economic activity. Here's "Who's Afraid of the Big Bad Money Supply?": The money supply, you may have noticed, has been growing at rates = significantly in excess of the Fed's target ranges for it. Should you = care? Some economists say yes. But more say not yet.=20 Money supply measures stopped being a reliable predictor of economic = activity in the early '90s. But more recently both money and the economy = have been growing again, prompting some economists to wonder whether = money has regained some of its predictive value.=20 If so, is the rising tide of money either a precursor of goods and = services inflation, or a cause of asset inflation? KeyCorp chief = economist Ken Mayland thinks so. "Last year I said it's the most = underappreciated inflation factor long-term," he said. "That goes doubly = now, because money growth has continued to accelerate."=20 The underlying assumption is that a high rate of money-supply growth = reflects a high level of economic activity. When there's lots of = economic activity, demand for loans to finance it is strong. So to keep = lending rates from rising above its fed funds target for them, the Fed = supplies as much money as there is demand for, by buying Treasury = securities back from investors. Unless economic activity slowed and loan = demand waned, the Fed would have to raise the Fed funds rate to slow the = growth of money supply. The relationship between money-supply growth and = economic growth may have gotten a little out of whack during the '90s, = Mayland concedes. "But in the long run, the basic relationship will = hold. It you look across countries, or at our own country across time, = you'll find that fast money growth is associated with high and rising = inflation, and low money growth is associated with low inflation. So if = these high rates are sustained, I think we can anticipate higher = inflation resulting from it."=20 Other economists don't dispute the central point that a sustained high = rate of money-supply growth is potentially inflationary. But they point = out that the money-supply growth rate can temporarily accelerate for = reasons other than an increased level of economic activity -- in other = words, for noninflationary reasons -- and that that's probably what's = been going on lately. At the very least, these economists say, this is the wrong time of year = to be drawing conclusions from money-supply growth. It has accelerated = in large measure because taxpayers, anticipating April 15, shifted funds = into bank and money-market fund accounts, which are considered part of = the money supply. The same thing happened last year. In its = Humphrey-Hawkins report to Congress last July, the Fed said that M2, a = key money-supply measure, "surged in April, as households apparently = accumulated additional liquid balances in order to make the larger tax = payments, and was about unchanged on a seasonally adjusted basis in May = as payments cleared and balances returned to normal."=20 A second factor in the increase in money-supply growth this year is the = wave of mortgage activity that swept the country at the beginning of the = year after long-term interest rates hit four-year lows, economists say. = "When you refinance, a lot of money gets passed around the table," Daiwa = Securities chief economist Michael Moran says. Much of it spends time in = escrow, in accounts that count toward the money supply. The mortgage = wave has since receded as interest rates have risen, and its = contribution to money-supply growth should eventually ebb as well, = economists say. The Mortgage Bankers Association's weekly index of = refinancing activity shot up from 972.7 in the week ended Jan. 2 to = 3093.3 three weeks later. Last week, it was down to 1112.3. "If there's = a jump in mortgage refi activity, as there was at the beginning of this = year," Moran said, "you're going to see deposit accounts increasing in = size."=20 A third factor in money-supply growth that doesn't necessarily indicate = a high level of economic activity is portfolio shifting, economists say. = Investors may increase their liquid assets because rising stock prices = make them want to spend more, as Merrill Lynch chief economist Bruce = Steinberg suggests in a recent report. "The bullmarket has added a vast = amount of wealth to household balance sheets," he wrote. "Rising wealth = increases the demand for cash balances, leading to faster money growth." But they may also do it because rising stock prices make them = nervous. If they cash out and put the money in a safe place, they'll = increase the money supply. "It's what economists call precautionary = demand for money," Daiwa's Moran says. "It's not fueling economic = activity or reflecting a high volume of transactions."=20 The Fed, it bears pointing out, is fully aware that the connection = between money growth and economic growth is "tenuous," as Merrill's = Steinberg puts it. And the governors fully expected money supply to grow = faster than the economy this year. But the Fed didn't expect money to = grow quite as fast as it has, and a tenuous connection is still a = connection. Hence the alarms over money growth.=20 Still, many economists insist it's premature to freak out. "We need to = see what happens over the next couple of months," Moran says. "If money-supply growth is still strong in May and = June, it would suggest there's more than just mortgage refinancing and taxes going on."=20 - ------=_NextPart_000_000D_01BD769E.E60D8D00 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable

Excellent article in the Street.com detailing the connection between = money=20 supply, inflation and economic activity.

 Here's "Who's Afraid of the Big Bad Money = Supply?":

The money supply, you may have noticed, has been growing at rates=20 significantly in excess of the Fed's target ranges for it. Should you = care? Some=20 economists say yes. But more say not yet.

Money supply measures stopped being a reliable predictor of economic = activity=20 in the early '90s. But more recently both money and the economy have = been=20 growing again, prompting some economists to wonder whether money has = regained=20 some of its predictive value.

If so, is the rising tide of money either a precursor of goods and = services=20 inflation, or a cause of asset inflation? KeyCorp chief economist Ken = Mayland=20 thinks so. "Last year I said it's the most underappreciated = inflation=20 factor long-term," he said. "That goes doubly now, because = money=20 growth has continued to accelerate."

The underlying assumption is that a high rate of money-supply growth = reflects=20 a high level of economic activity. When there's lots of economic = activity,=20 demand for loans to finance it is strong. So to keep lending rates from = rising=20 above its fed funds target for them, the Fed supplies as much money as = there is=20 demand for, by buying Treasury securities back from investors. Unless = economic=20 activity slowed and loan demand waned, the Fed would have to raise the = Fed funds=20 rate to slow the growth of money supply. The relationship between = money-supply=20 growth and economic growth may have gotten a little out of whack during = the=20 '90s, Mayland concedes. "But in the long run, the basic = relationship will=20 hold. It you look across countries, or at our own country across time, = you'll=20 find that fast money growth is associated with high and rising = inflation, and=20 low money growth is associated with low inflation. So if these high = rates are=20 sustained, I think we can anticipate higher inflation resulting from = it."=20

Other economists don't dispute the central point that a sustained = high rate=20 of money-supply growth is potentially inflationary. But they point out = that the=20 money-supply growth rate can temporarily accelerate for reasons other = than an=20 increased level of economic activity -- in other words, for = noninflationary=20 reasons -- and that that's probably what's been going on lately.

At the very least, these economists say, this is the wrong time of = year to be=20 drawing conclusions from money-supply growth. It has accelerated in = large=20 measure because taxpayers, anticipating April 15, shifted funds into = bank and=20 money-market fund accounts, which are considered part of the money = supply. The=20 same thing happened last year. In its Humphrey-Hawkins report to = Congress last=20 July, the Fed said that M2, a key money-supply measure, "surged in = April,=20 as households apparently accumulated additional liquid balances in order = to make=20 the larger tax payments, and was about unchanged on a seasonally = adjusted basis=20 in May as payments cleared and balances returned to normal."

A second factor in the increase in money-supply growth this year is = the wave=20 of mortgage activity that swept the country at the beginning of the year = after=20 long-term interest rates hit four-year lows, economists say. "When = you=20 refinance, a lot of money gets passed around the table," Daiwa = Securities=20 chief economist Michael Moran says. Much of it spends time in escrow, in = accounts that count toward the money supply. The mortgage wave has since = receded=20 as interest rates have risen, and its contribution to money-supply = growth should=20 eventually ebb as well, economists say. The Mortgage Bankers = Association's=20 weekly index of refinancing activity shot up from 972.7 in the week = ended Jan. 2=20 to 3093.3 three weeks later. Last week, it was down to 1112.3. "If = there's=20 a jump in mortgage refi activity, as there was at the beginning of this=20 year," Moran said, "you're going to see deposit accounts = increasing in=20 size."

A third factor in money-supply growth that doesn't necessarily = indicate a=20 high level of economic activity is portfolio shifting, economists say. = Investors=20 may increase their liquid assets because rising stock prices make them = want to=20 spend more, as Merrill Lynch chief economist Bruce Steinberg suggests in = a=20 recent report. "The bullmarket has added a vast amount of wealth to = household balance sheets," he wrote. "Rising wealth increases = the=20 demand for cash balances, leading to faster money
growth." But = they may=20 also do it because rising stock prices make them nervous. If they cash = out and=20 put the money in a safe place, they'll increase the money supply. = "It's=20 what economists call precautionary demand for money," Daiwa's Moran = says.=20 "It's not fueling economic activity or reflecting a high volume of=20 transactions."

The Fed, it bears pointing out, is fully aware that the connection = between=20 money growth and economic growth is "tenuous," as Merrill's = Steinberg=20 puts it. And the governors fully expected money supply to grow faster = than the=20 economy this year. But the Fed didn't expect money to grow quite as fast = as it=20 has, and a tenuous connection is still a connection. Hence the alarms = over money=20 growth.

Still, many economists insist it's premature to freak out. "We = need to=20 see what happens over the next couple of
months," Moran says. = "If=20 money-supply growth is still strong in May and June, it would suggest = there's=20 more than
just mortgage refinancing and taxes going on."=20

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