Wednesday, May 16, 2007

[Latest Global Dollar Liquidity Measure: +13.95% annual growth rate; latest Endogenous Liquidity Index: +7.76%]

. Bill Gross. "How We Learned to Stop Worrying (so much) and Love Da Bomb", PIMCO Bonds

Ladies and Gentlemen: this is by far the most important piece on global liquidity that I have read in a while. Bill Gross is telling us in no uncertain terms that the time has come to embrace all the elements of the global liquidity tide: the New Bretton Woods proposition, financial innovation and its wonders, the Great Moderation of the business cycle, and even ... the carry trade ("the dominant liquidity lever in today’s marketplace").

Among the many, many interesting conclusions to draw from this piece: (a) an excess of caution "has cost [PIMCO] some basis points"; (b) foreign CBs' purchases of U.S. bonds keep long-term rates down by as much as 50 basis points; (c) PIMCO will enter local-currency money markets in selected emerging economies.


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