MONEY SUPPLY UP UP AND AWAY!

For ten of the the past 12 weeks, M3 money supply has grown. Drop, drop, fiz, fiz O! what a relief it is!

The tightening money supply has been causing heartburn across the investment land. The stock market has gone up anyway. Now the money supply is expanding again. Where will the "extra" money flow?

The dramatic climb in resort real estate values slowed this summer. The brakes appear to be coming off. Stocks, which have been trapped by massive over-head resistance, are on the verge of a significant break-out. It will be very interesting to see if the bond market leads or drags. Our bond market frame of reference causes us to think that long-rates must go up. However, core inflation rates of 1% are not apart of the frame of reference for investors. It appears that core rates may drop to 1%!

The market can turn on a dime but the current high price of fuel is biting around the world. You might guess that France would be the first country to squeeze the oil companies. Two majors in France have lowered prices by a couple of cents per litter under pressure from the government. No wonder the country has such anemic growth. Businesses are forced to take the loss when the market changes. Every business must be allowed to charge the market price or shortages will surely develop.

The French solution is a long-run catastrophe. Never-the-less, it demonstrates that demand is going to be restrained as a result of the current price. India and Indonesia, two other countries with socialistic principles, have lowered their subsidies thus increasing the price of oil to millions. The cost of fuel in many European countries has increased from around $4 to $6!

Evidence is mounting that growth in many countries has started to slow. Japan is making the news for coming out of its deflationary spiral but many a European country is at risk of deflation. Shortages in China add to the potential slow down.

I am almost convinced that bonds will lead the markets to higher ground; at least at first. Last night, I found it interesting that two members of my bible study group had car pooled with folks attending other meetings. The two meetings let out 30 minutes apart. The point is that folks are going out of their way to reduce gasoline consumption.

Only a few weeks ago, my wife and I agreed that there were just as many big Suvs in the parking lot as ever before. The high prices have hit home. Consumers are cutting back. At the Olive Garden this weekend, we ate an hour earlier than usual but Marilyn was surprised when we were seated immediately. She asked the waiter if the slowdown was a result of gasoline prices and he waxed on about the sharp decline in business.

The slow down could lead to a 3 to 3.5% 10 year note! High dividend stocks would suddenly be all the more attractive. Yes, the money supply is moving up. Good news for the price of assets. Bonds may lead because of world wide slowing growth. Stocks are already cheap relative to bonds. Should the price of bonds go up, the Bull will not be contained. When the market breaks out, those who have hesitated to buy the second home may rethink their decision.

BUY THE BULL! STOCKS DO WELL DURING SLOW GROWTH ECONOMIES! FOR THE ADVENTUROUS, BUY A BEACH PROPERTY AND THE ODDS ARE GOOD YOU WILL BE ABLE TO FLIP IT NEXT SPRING. A RISKY GAME BUT THE LEVERAGE MAKES THE POTENTIAL RISK AND THE POTENTIAL REWARD VERY LARGE!

AGGRESSIVE INVESTORS WHO ARE IN FOR THE VERY LONG HAUL SHOULD EVEN CONSIDER USING LEVERAGE IN STOCK PORTFOLIOS. CAUTION! CAUTION! CAUTION! NOTHING IN THIS BLOG IS WRITTEN AS A RECOMMENDATION! LEVERAGE IS LIKE TRAVELING DOWN THE AUTOBAHN AT 90 MILES PER HOUR. IT IS ONLY FUN IF YOU REALLY KNOW HOW TO DRIVE AND IF YOU DO NOT MAKE MISTAKES. THOSE WHO CONSIDER LEVERAGE SHOULD PERHAPS DO NO MORE THAN 30% AND THEY MUST BE "LONG-HAUL" INVESTORS USING DISCOUNT MARGIN RATES!