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Posts Tagged ‘how much money is in market’

Greater Fool Theory: STRONGLY RECOMMENDED READING

Posted by Larry Doyle on June 13th, 2009 8:14 AM |

Investing is often much more an art than a science. What moves markets both up and down often will defy any logical line of reasoning. That fact can and will frustrate many money managers.

While I traded on Wall Street, I was fortunate to experience many different types of markets and the driving forces behind them. Ultimately I learned that over the very long haul, fundamental analysis will carry the day. That said, for protracted periods the mere flow of funds and market psychology embedded in technical analysis can be powerful if not overwhelming.

I addressed this line of reasoning the other day in writing What’s Driving the Market. I find it particularly uncanny that the lead article in today’s Wall Street Journal, Stocks in the Black on Gusher of Cash, navigates this same line of reasoning.

I wholeheartedly agree with the analysis put forth by the WSJ. I want to juxtapose my writing with that of the WSJ to highlight a theory which readers will likely never see or hear from individuals involved in the financial industry. Coming from a family of lawyers, allow me to “make my case.”

In my piece on Thursday, I wrote:

From my perspective, the Fed and Treasury have created nothing short of a flood of liquidity throughout our financial system and economy. While the economic activity is anything but robust, this money is in the system. Banks are not aggressively looking to lend and will not cut interest rates or credit standards. The shadow banking system (securitization process) remains stagnant.

Thus, where does the money/liquidity go? Much like pools of water after a torrential rainstorm, the pools of liquidity in our system are looking to penetrate any available crack and crevice.

The WSJ writes this morning:

governments around the world are pumping money into the economy at a frenetic pace. Because businesses can’t put trillions of new dollars to work in such a short time, the money is finding its way into financial markets. Some investors have begun speaking of a “bailout bubble” being created in certain markets, and about a “melt-up” in demand fueled by the growing supply of money.

“All that money that was printed had to go somewhere,” says Joachim Fels, co-head of global economics at Morgan Stanley.

As anybody involved in finance can appreciate, “follow the money” holds not only for criminal investigations but also for investment purposes. Let’s continue “down the river.” (more…)






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