Monetary Liquidity

The two precursors of basic monetary liquidity in the
US are the Adjusted Monetary base and Federal Reserve Credit.
As you know, they are both very close in content. Both have
flattened out since late January, 2006.

These series are fallible indicators of the markets. They work
best when interest in monetary policy is intense, as it has been
since mid-2004. It is not easy to trade this data, as the
primary dealers on the Street experience the data as order flow
and can act on it the fastest.

Interestingly, the big cap stock averages have returned to mid-
Jan. ' 06 levels. One plausible interpretation is that players
are getting a little edgy about monetary policy following the
major liquidity infusion which ran from late Oct. '05 through
early Jan. '06. In short, some players are now less enthused
the Fed will stop raising short rates right ahead.

The US Dollar has also fared a little better since the Fed took
its foot off the gas in Jan. In fact, $USD fundamentals are
currently nicely positive although there is concern that
the dollar will prove vulnerable once the Fed stops raising
rates.

The gold market normally gets jittery when the Fed steps back
and lets its own portfolio flatten out in $ terms. Both gold
and oil did sell off sharply after then chairman Uncle Al
pared back Fed Credit as January unwound. But both have
been on a tear recently, with the Iran - US trash talking
contest in full swing ( Note that Iran likes high oil
prices as does GWB's and The Shooter's Texas oil buddies).

Next couple of weeks will be interesting regarding these
liquidity forerunners as this data will further clarify
Fed intent.