I have revised the investment classic

The Money Market

, a book first published in 1978 and revised in 1983 and 1989 by the late Marcia Stigum. It is one of the most famous books in bond market history.

I took great care to assure that the fourth edition, titled

Stigum's Money Market

, would stay true to its reputation as the definitive and most widely read work on its subject matter; it can be found in nearly every major financial institution on Wall Street and in every major university.


The Money Market

was first published, it was hailed as a landmark work by leaders of the financial, business and investment communities. The fourth edition contains an all-encompassing, cohesive view of the vast and complex money market, a market at the center of the behavior of the financial markets, chiefly through the influence of the

Federal Reserve


Stigum's Money Market

is loaded with insights into complex topics, which are broken down throughout the book, sometimes with a simple chart or illustration. For example, we hear a lot these days about credit default swaps, a recent financial innovation that is having a great deal of impact on the appetite for risk-taking, and this revision contains an illustration that shows how credit default swaps work.

As mentioned, the money market is at the center of the behavior of the financial markets. The money market is where money is created and where the Federal Reserve does its handiwork. Although attention is not normally put on the money market itself, investors' constant obsession with the Fed and the flow of money means that by extension they are focused intensely on the money market, too. This is why it is so important to gain as much understanding as possible about the money market.

There are three main sections of the book covering subject matter that can help investors better understand how the money market affects their investments:

Money market fundamentals

: This section opens the book by explaining the flow of money, which has a major bearing on the way that both the economy and the markets behave. For example, for many years, money has flowed from the household sector, but in recent years the situation has become reversed, largely because of the sharp growth in corporate profits and the negative savings rate in the household sector.

This has had profound impact on the performance of the stock and bond markets, because more of the income generated in the economy has been flowing toward corporations, a good thing for stock and bond prices. This section also discusses the instruments of the money market in brief, and discusses discount and interest-bearing securities and duration and convexity.

The major players

: This section explains the critical role of the banking sector, showing in great detail the major trends now in place, such as interstate branching, the importance of fee income banks, money creation and how banks manage their risks.

More than 200 pages are devoted to the banking sector here and abroad, and there are plenty of good trading ideas that can be developed from increased familiarity with the topics discussed. Also discussed are the Treasury, federal agencies and the Fed -- institutions with vast impact on the markets. The important role of Wall Street dealers is also covered.

The markets

: This section explores the federal funds market, the market where the Federal Reserve sets interest rates. Also covered are the massive repo and reverse markets, markets that finance Wall Street's leveraged trading.

The section covers government and federal agency securities, doing so in depth with over 100 pages of coverage. Financial futures are looked at in great detail, providing detail to help anyone interested in trading futures as well as information for others who can benefit from the large amount of market intelligence available in the futures markets. The section on financial options is extremely relevant to anyone seeking to learn more about the options.

There is also detailed coverage of the eurodollar market, a market now exerting substantial influence on markets worldwide. This can be seen in the U.S. Treasury market, where the recent inversion of the Treasury yield curve has been pinned in part on the flow of capital from countries such as China and Japan, which hold vast supplies of dollars. This section also covers the vast interest rate swap market, certificates of deposit, bankers' acceptance, commercial paper, loan participations, medium-term notes, money market funds and municipal notes.

A lengthy book,

Stigum's Money Market

is meant to serve as a reference guide to answer multitudes of questions. The hundreds of new illustrations and a summary at the end of each chapter help readers gain a quick understanding of the book without having to read it cover to cover.

I spent a great deal of time digging through mounds of the best research I could find from institutions such as the Federal Reserve and the Bank for International Settlements to find illustrations that would quickly explain complex topics, ever mindful that we live in a world where people want information fast and where attention spans are shorter than they once were.

Stigum's Money Market

has been empowering investors for almost 30 years, because its readers have astutely recognized the powerful role that the money market plays in the behavior of the economy and markets, knowing full well that this investment classic is the best source of tools an investor needs to succeed.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic,

The Money Market

, first published in 1978 by Marcia Stigum, and

The Strategic Bond Investor

. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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