IMPLOSION! EXPLOSION!
[Latest Global Dollar Liquidity Measure: +15.5% annual growth rate; latest Endogenous Liquidity Index: -5.1%]

Our Endogenous Liquidity Index suffered yesterday its sharpest one-day fall since inception: -6.0%! All components registered losses: the "Great Moderation" indicator (as measured by the VIX and other volatility measures), CDS spreads and credit spreads in general, and measures of financial innovation. Implosion!

Meanwhile, foreign central banks continue to buy Treasury and agency securities at increasing rates. (See our last weekly report and this post by Brad Setser, who doesn't rule out the possibility that total emerging market reserve growth could "easily be in the $500-600b range for the first half of the year -- or $1,000 to $1,200b annualized"). Explosion!

With global liquidity both exploding and imploding, I remain true to the trading-range scenario for risky assets. Is there any money to be made? According to the Financial Times:

A $2bn fund run by New York's Paulson & Co was the single best-performing fund, rising 39.95 per cent after fees in June thanks to its dedicated bets against subprime mortgages – loans to less credit-worthy homeowners. Other hedge funds following similar strategies produced returns as high as 27.5 per cent in the month, while another manager has tripled investor money this year, according to investors.

Nice!