By the end of this chapter, you should
• Understand why knowledge of the flow of funds is important to determining stock market valuation
• Understand why liquidity plays an important role in potential stock market valuation
• Be familiar with measurements of market liquidity
• Understand the relationship between Federal Reserve policy and the cost of funds
Thus far, we have covered four of the five necessary ingredients for making a reasonable assessment of the market’s future direction. We have looked at the primary trend, as defined in the Dow Theory; at sentiment, to see how different types of investors are thinking and acting; at market indicators, as confirmation of or divergence from the trend; ...