-- Posted Tuesday, 15 November 2005 | Digg This Article
Rick’s Picks
Tuesday, November 15, 2005
For investors who’d rather be smart than lucky
Now Helicopter Ben’s been spotted at the controls of a black helicopter. Conspiracy theories abound concerning the Fed’s recent decision to stop publishing M3 data. Some fear this will give Alan Greenspan’s successor more room to manipulate monetary policy surreptitiously. There’s a more plausible explanation, though – one that is about as intriguing as the Boy Scout Handbook. Very simply, M3 growth has become less useful to the central bank as a predictor of CPI inflation. Increasingly volatile, M3 grew 11% in the July-October period, versus a more sedate 6.2% for M2.
For purposes of keeping inflation under control, and to maintain monetary expansion at a rate consistent with 3-4% growth in the economy, the central bank has been loosely targeting M2 all along. For this reason it would have been no big deal for the Fed to de-emphasize the broader M3, which at $10 trillion exceeds M2 by $4 trillion and includes institutional money market funds, large-denomination time deposits (i.e., more than $100k), repos and eurodollars.
Giving M3 the heave-ho would be consistent with the Fed's understandable desire to treat the mouse of consumer inflation as meaningful while averting its eyes from the rampaging elephant of financial-asset inflation. It's possible the change was gestated at the level of the Fed's research department, which, in the light M2-driven Fed policy, would have regarded M3 numbers-crunching as a waste of time. If that was the case, then their recommendation would have been implemented by a show of hands at a meeting of the Federal Reserve Board.
In any event, there are about 500 economists working at the Fed, and if there's a conspiracy afoot, we seriously doubt they'll all be able to keep it a secret.
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The Origin of ‘Bulls’ and ‘Bears’
How did “bull” and “bear” come into usage on Wall Street? Here’s an interesting explanation that recently turned up in my mailbox:
“In 17th century England, it was pointed out that it is not wise ‘to sell the bear’s skin before one has caught the bear’. In London, the term ‘bear-skin’ from this proverb was being used in the phrase ‘to sell the bear-skin’ or ‘to buy the bear-skin’. Bear-skin jobbers would sell a skin before they had actually caught the bear, in case prices went lower.
“The word ‘bear’ first appeared in1709 and originally referred to the practice of selling stock one did not own, for delivery at a future date, in expectation that the price would fall. Gradually, the term took on the meaning of being generally pessimistic about stock prices.
“ ‘Bull’ appeared a few years later, in 1714. It’s believed that bull was chosen because of the popularity of the blood sports of bear-baiting and bull-baiting. Bull- and bear-baiting date back to 11th century England. A bull or bear would be tethered to a pole (usually in a pub, to encourage betting) and attacked by 20 to 30 dogs. These dogs would ‘bait’ the animal.
“Dogs were bred for powerful jaws and aggression to fight the bulls. There were the early British Bull Dogs, Mastiffs, Pit Bull Terriers and Staffordshire Bull-Terriers. In Shakespeare’s time, they had the “Bull and Bear-Baiting Gardens” in London’s Bankside neighborhood, and noblemen competed for the royal patent as Master of the Royal Game of Bears, Bull and Mastiff Dogs.
“The term ‘bear’ became widespread in 1720, when England was rocked by the South Sea Bubble. The South Sea Company supposedly owned trading rights with Chile and Peru and was planning to make a fortune in gold mining. Within months, South Sea stock soared tenfold. A small problem, though: The King of Spain had no intention of letting an English company get its foot in the door in Spain’s South American colonies. The South Sea Bubble bust and wiped out fortunes. Sound familiar? Now you know the true origins of bulls and bear.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2005, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 15 November 2005 | Digg This Article
