Monday, July 16, 2007

[Latest Global Dollar Liquidity Measure: +15.5% annual growth rate; latest Endogenous Liquidity Index: -1.2%]

- Liquidity & CNBC's Trillion Dollar Survey. According to CNBC's survey, "Liquidity is the strongest factor influencing the stock market right now". More than 26% of those surveyed see "market liquidity" as the key factor. That's pretty interesting: our own measures of market liquidity aren't quite as bullish.

- Boeing, Caterpillar & Volatility. Fascinating piece by John Gapper. Here's the key part: "The 787 is remarkable for the degree to which Boeing has outsourced production around the world. Boeing itself is responsible for about 10 per cent by value –– tail fin and final assembly. The rest is done by 40 partners, with the wings built in Japan, the carbon composite fuselage in Italy and the US and the landing gear in France".

Boeing has ceased to call itself a manufacturing company; instead, it now sees itself as a systems aggregator, whatever that means. Now take Caterpillar. Weak U.S. demand due to the housing slump? No problem: let's open a Component Manufacturing Campus in Wuxi, China. What do Boeing's and Caterpillar's actions tell us about the expected volatility of the business cycle?

- Cisco Systems: productivity & the business cycle. There are a number of theories pretending to explain the "Great Moderation" of the business cycle. In the late 1990s, it was all about how digital networks helped companies better manage their inventories, thus leading to a smoother cycle. (By the way, I believe it's true: look at this amazing chart).

Enter John Chambers. In this interview, the Cisco CEO tells the Financial Times that "The introduction of consumer-driven web 2.0 technologies into businesses is set to usher in a new phase of productivity growth that could surpass that achieved during the late-1990s internet boom". Again: what does that tell us about the expected volatility of the business cycle?

- China to buy Ginnie Mae paper? What a story (Bloomberg). Just as the U.S. budget situation appears to be improving, the housing market slumps. No problem: just ask the Chinese to buy up those Ginnie Mae-guaranteed bonds.

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