Get Your Share of That Penny Stock Money

Summary by Michael Pergrem

stock money

Did you know there is a ton of penny stock money out there to be made right now? The opportunity is there especially now. America is in this credit crisis and it is crippling to stock market as we know it. For many people, this is a bad thing. They worry that investments will be bad and money will be lost. What they do not think about is that, just like past crisis, it will come back. When it does, there will be many smart people take home a lot of that penny stock money!

You see, the whole market is down right now. What better time could there be to invest. There is one thing we know for sure, the stock market is not going to just disappear. It is times like this that great investors are made. The investors that are not afraid and can adapt to the situation will succeed. This is penny stocks come in. Say a penny stock is at $.25 and during this crisis it has dropped to $.12. Well, when the market gets back up on its feet, that price is going to get close to, if not pass up, $.25. That is over a 100% gain!

Many penny stocks are going to see incredible gain in there price very quickly. This is going to lead to some big penny stock money for many people! So who are you going to be, someone who was afraid of a little risk, or someone who took advantage of the situation and made a lot of money?

Buffer Stock Money

Shock absorber

stock market money

There has recently been revived interest in the role of money as a buffer stock money balances, it is argued, are highly liquid assets that act as a ’shock absorber’ and allow agents to postpone costly adjustments to holdings of other financial assets or to economic variables such as employment, investment, and output. Interest in the buffer stock approach has been prompted by the difficulties experienced in the estimation of stable demand for money functions, in understanding the ‘long and variable lags’ of monetary policy, and in the phenomena of interest rate and exchange rate overshooting under monetary targets.

The workshop was opened by Keith Cuthbertson and Mark Taylor (Newcastle University), with a paper entitled ‘Buffer Stock Money: An Appraisal’. They outlined the four main approaches to buffer stock money. This gives rise to a system of equations in which the variables that determine money demand are themselves affected by the excess demand for money.

Individuals’ money balances respond to these shocks initially, and this gives rise to unanticipated levels of money holdings: it is these unanticipated holdings that constitute the buffer stock. Suppose the economy experiences a shock, i.e. an unanticipated change in the money supply. If expectations are formed rationally, anticipated changes in the money supply are immediately reflected in price expectations, and if prices are flexible, then real money balances are unchanged.

Carr and Derby supported their theory with empirical estimates, using US data, of a demand for money function which included ‘unanticipated money’, i.e. the residuals from an equation ‘explaining’ the money stock. This gives rise to a complicated estimation problem: the resulting demand equation relates the change in money demand to the unexpected changes in income, prices and interest rates, but the underlying theory imposes complex restrictions on the models coefficients.

Cuthbertson and Taylor had estimated the forward-looking model, and argued that the results were reasonable and confirmed the role of money as a buffer stock. For example, the effect on money holdings of an unanticipated change in real income was three times that of an anticipated change: money holdings appeared to absorb income fluctuations. One drawback of this approach is that the buffer stock money holdings are the residual in the demand equation and are not modelled explicitly.

Cuthbertson and Taylor then discussed an alternative model that used Kalman Filtering to model the buffer stock explicitly; estimation of this model had yielded similar results. The analysis suggested that models that allowed for forward-looking behaviour generally produced more satisfactory results, Cuthbertson and Taylor concluded.

Peter Spencer (HM Treasury) argued that the significant costs of adjustment came not from changing money holdings but from changing the holdings of other assets, so that buffering could affect a wide range of assets.

In ‘Buffer Stock Money and Money Demand Equations’, James Davidson (LSE) discussed the problems of formalizing the buffer stock approach at a microeconomic level. Davidson hypothesized following Akerlof’s earlier work that individuals have a range of acceptable money holdings. Changes in money holdings which result from payments and receipts are termed ‘autonomous’, these are distinguished from ‘induced’ changes, designed to restore money holdings to the acceptable band. In such a framework, changes in the money supply will have no effect unless they cause the money holdings of some individuals move outside their thresholds.

Davidson used this microeconomic framework to derive a money demand function, in which demand depends on lagged money holdings, desired long-run money holdings, and autonomous transactions outside the non-bank sector. Davidson noted that, in particular, if the money supply is assumed to be exogenous, then the money demand equation he had derived reduced to a money supply equation! Those who estimated traditional demand for money equations ought to have some faith in the endogeneity of money, he observed. If markets cleared, buffer stock money had no real role to play. If markets were in disequilibrium, however, the buffer stock approach could be important.

Charles Goodhart (LSE) argued that buffer stock analysis essentially involved responses to supply shocks. Charles Goodhart raised the question of the policy implications of the buffer stock analysis. Did the buffer stock analysis suggest that this was a desirable policy? Laidler agreed that the focus should be on disequilibrium and argued that one of the main attractions of buffer stock money was that it provided some form of rationale for the maintenance of disequilibrium, since buffer stocks of money allowed individuals to postpone the costly process of adjustment. Goodhart commented that the increasing instability in money demand may lead model builders to abandon money demand equations.

I suggest you to read the other article: Stock Market Today