DON'T BELIEVE THE HYPE

This latest piece from Whiskey & Gunpowder highlights a problem that's worth keeping an eye on, in my opinion. As many of you know, last March the Federal Reserve suspended publication of M3, the most comprehensive measure of "money supply," which includes US currency, central bank accounts, demand (i.e., checking) accounts, savings accounts, money market accounts, certificates of deposit . . . plus, most importantly, Eurodollar deposits and repurchase agreements (by which the Fed borrows -- or outright buys via a coupon pass -- securities from the US Treasury, Fannie/Freddie, etc., which results in the "excess liquidity" we hear so much about).

Whew.

So, by discontinuing the publication of this measure of total liquidity, the Fed can keep us in the dark as to the root causes of inflation (an Increase in Money + Credit). Why? Many possibilities, the least nefarious of which would argue that because of derivatives and foreign currency, it's simply too difficult to keep tabs on all the inputs. The most nefarious? Let your imagination run wild.

Getting back on track, the Whiskey & Gunpowder piece I mentioned discusses the discontinuation of yet another piece of data useful to investors and curious citizens alike: the so-called COT report, which basically tracks the commitments of futures traders. The article will explain the significance of this better than I, so I'll just quote a short blip, then turn it over to those who actually know what the hell they're talking about:

"For those that have not heard the term 'COT report,' it is the Commitments of Traders report, which discloses the futures position of hedgers (commodity producers or buyers), big specs (hedge and mutual funds), and small specs (individual traders), and whether or not they are short or long and by how much they are short or long. That statement alone should be enough to tell you that certain players may not want their positions to be known. Rest assured that the big players will probably know it anyway, and not just once a week, either.

At a time when data are easy and cheap to gather, we should have more, not less, data. It seems the SEC, the CFTC, the Fed, and various other government agencies are acting to restrict the flow of information. Many people are upset about the cancellation of M3 reporting and fear the same will happen to COT data."

(Emphasis added). The entire article, which is quite short, is here. I recommend giving it a spin.