LIQUIDITY TALK. RECENT NEWS ...
[Latest Global Dollar Liquidity Measure: +14.5% annual growth rate; latest Endogenous Liquidity Index: +7.7%]

- Morgan Stanley's Richard Berner assesses financial conditions following the recent market correction. This piece is particularly interesting, because Mr. Berner reviews one by one the elements of the global liquidity boom: the mix of global savings, credit spreads and —last but not least— the impact of financial innovation on the "Great Moderation".

- From Bloomberg: China's trade surplus soars 73% in May from a year earlier to $22.45 billion, state-run news agency Xinhua reports, citing data from the customs bureau. See also Brad Setser's take on the surprising April U.S. trade data.

- The Federal Reserve releases its weekly balance sheet, with its important annexes. Our Global Dollar Liquidity measure contracts slightly.

- PIMCO's Bill Gross shakes up the bond market. In an interview published in the firm's website, the investor detects a change at the margin in the behaviour of "reserve nations": the China-Blackstone deal means that central banks are likely to do less recycling. "To the extent that that stops at the margin—an example being China now investing $3 billion in Blackstone, a private equity firm—we have to factor that into our equation in terms of the attractiveness of bonds".

- An article on Lloyd C. Blankflein, the CEO of Goldman Sachs (Jenny Anderson: "Goldman Runs Risks, Reaps Rewards", The New York Times). Mr. Blankflein describes himself as "cautiously optimistic about the current market". And he adds: "... to be successful in this business, you have to have a degree of risk tolerance".

- The Reserve Bank of New Zealand raises its target for the the Official Cash Rate from 7.75% to 8.00%. Says Governor Alan Bollard: "Had we not increased the OCR this year, it is likely that the inflation outlook would now be looking uncomfortably high".

- The European Central Bank raises its short-term rate target from 3.75% to 4.00%. As usual, Mr. Trichet mentions the L-Word: "... liquidity in the euro area [is] ample".

- Interesting speech by Federal Reserve Board Governor Kevin Warsh on "Financial Intermediation and Complete Markets". Lots of references to liquidity issues: Mr. Warsh is a keen global liquidity watcher.

- Sebastian Becker, of Deutsche Bank Research, publishes an essay on "Global liquidity 'glut' and asset price inflation. Fact or fiction?" I'll review it during the week.