A Visit to the Money Markets

December 2nd, 2008 3:11 pm | by John Jansen |

I just chatted with the money market trader with whom I have not spoken in quite some time and I think that some of his observations are worth sharing with the readers of this constant epistle.He notes that he lives and works in a constantly improving corner of the fixed income world but as in a Robert Frost poem he noted that there are many more miles to be traveled before the work is complete.

Yes the world feels better and complete freeze up of the system has been avoided. However, the markets have not dealt with two significant problems which need action.

There is still a significant tiering effect between the haves and the have nots.

Secondly, he notes pointedly, the market functions well but only because a ‘faux facility is streaming government funding” to the market. The market could not operate without the crutch of that Federal Reserve assistance.

No one will tackle that issue this year. It is an issue which participants will wrestle with in 2009. The bone of contention will be the economy. According to my source, investors are wary of credit and financial credit in the first half of 2009. It will be the job of the regulators to wean investors from government support and it will be interesting to see how they can do that (can they do it at all?) as credit deteriorates.

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  1. 5 Responses to “A Visit to the Money Markets”

  2. By jomiku on Dec 2, 2008 | Reply

    Yes, without the Fed here and other interventions abroad, money now would be as useful as those giant rocks on Yap.

  3. By cyclingscholar on Dec 2, 2008 | Reply

    People are learning that the issue is not the money supply M, M times the velocity of money, V. This is a concept known to anyone who has had an introductory economics course and paid attention…which isn’t many people these days. Until the collapse in the velocity of money is stopped, all the liquidity in the world will not fuel demand.

    Or fuel inflation. Just ask any gold bug.

    cyclingscholar

  4. By cyclingscholar on Dec 2, 2008 | Reply

    edit previous post, the sentence should read:
    “The issue is not the money supply M, rather it is M times the Velocity of Money, V”

    cyclingscholar

  5. By fuelinflation on Dec 2, 2008 | Reply

    True; but 180dgrees in gold “intervention” might bring about (the perception of) inflation which might prove quite enough to start handling this one. Plus it’s quite cheap in comparison. Such trick.

    However, it is also true, it represents quite the opposite of the current FEDs (miss)intervention in long Treasuries: no end to housing slump, no income hikes plus NO inflation. Plain Depressing.

  6. By EDC on Dec 2, 2008 | Reply

    it is plain depressing..

    Even if a money market manager says things are going, it doesn’t help the fact that housing is in a constant free fall, overall prices are still to expensive in relation to wages.
    Credit expansion caused fantasy land prices and here we are unwinding the irrational exuberance.
    We thought the countrywide debacle was all cleared up with in the next 6 months only to watch more shoes fall.

    as others mention, more shoes will fall.

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