Wednesday, September 20, 2006

Housing and money supply









Housing -- So far, the stock market has totally ignored the housing situation. The Stock Market obviously doesn't think that the demise of the housing bubble is going to be a problem. I never take the position that I'm smarter than the market. If the market is doing something that is puzzling to me, I ask the question, "What could I be missing?"

I know home inventories are piling up. I know that it's difficult to even get a bid on a house you want to sell. I know that housing is a huge part of the US economy. So what could I be missing?

One thought comes to mind. The Fed obviously knows what's happening in housing. On this basis, I wonder if the Fed (quietly and subtly) isn't flooding the system with liquidity. If that's what the Fed is doing, that would explain the rise in bonds and that would explain the rise in stocks.

In every speech, Fed Chairman Bernanke has mentioned housing and the mortgage market. Clearly, housing has been on his mind. The more I think about it, the more it makes sense that the Fed would be flooding the system with liquidity.

Note -- If I'm correct, it should soon show in the action of gold.

Too bad the M-3 money supply figures are gone -- I'd really like to see what's happening to the money supply. My bet -- it's huge and expanding.

4 Comments:

Blogger David Ashley Gilbert said...

Your blog entry was very interesting. I am a realtor specializing in Tampa Bay Florida Real Estate .

5:56 AM  
Blogger Andy said...

I'm confused. The fed increases liquidity by increasing money supply, which in turn manipulates the federal funds rate. But the fed hasn't changed this rate, therefore they haven't changed the money supply.
What am I missing?

2:29 PM  
Blogger FreddyZ said...

Andy said:
"by increasing money supply, which in turn manipulates the federal funds rate. But the fed hasn't changed this rate"

It seems the key word is "manipulates". There is--at the very least--a time lag, and without M3, what is the "forcing function"?

6:19 PM  
Blogger Andy said...

"One thought comes to mind. The Fed obviously knows what's happening in housing. On this basis, I wonder if the Fed (quietly and subtly) isn't flooding the system with liquidity."

My question is: Does the fed change the money supply "quietly",and then announce it isn't changing the "federal funds rate" which it controls by manipulating the money supply? That would be tantamount to saying one thing, and doing something else entirely...

9:07 AM  

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