LIQUIDITY TALK
[Latest Global Dollar Liquidity Measure: +13.4% annual growth rate; latest Endogenous Liquidity Index: -28.8%]

[1] Bank Credit Analyst on the credit crunch. The top-notch Canadian consultant reviews the situation in credit-land and concludes: "So far there is no evidence to suggest that the credit and liquidity crunch is over". This is also what my numbers show. Chapeau to the stock market!

[2] Fortis Investments on the credit market /stock market decoupling. William De Vijlder mentions three reasons: (a) the rise in credit spreads may reflect a temporary illiquidity premium; (b) equities have remained the "liquid asset class" so there is no reason to incorporate an illiquidity premium; (c) the equity market did not become as overvalued as credit. Very interesting indeed!

[3] Merrill Lynch: credit markets 'remain challenging'. According to MarketWatch, Merrill Lynch & Co. (MER) in a filing Friday said credit-market conditions have continued to "remain challenging" in the third quarter and that it has made fair-value valuation adjustments to some of its exposures. The company didn't provide further details on the adjustments in the filing.

[4] Standard & Poor's on emerging markets. The Financial Times quotes an S&P report on liquidity and emerging markets: "If tighter liquidity conditions intensify, Latvia, Iceland, Bulgaria, Turkey and Romania would top the list of countries most at risk of repercussions due to their greater inflows to finance current account deficits". Would investors in these countries rush to buy euros, as Asians bought dollars ten years ago?

[5] Flight to quality in hedge fund land? The Financial Times reports that SAC Capital raised $1bn two weeks ago, thus "underscoring the demand for the most successful funds even during difficult times". But investors in hedge funds, adds the FT, said smaller funds might suffer as a result. Says Ken Kinsey-Quick, head of Thames River Capital: "A lot of investors are going to be saying get out of anything small".

[6] Gillian Tett: credit rating agencies & liquidity risk. The star FT editor writes: "I expect credit rating agencies to come under fire. These agencies have always insisted that their ratings only measure the likely default rates of instruments or institutions, not their liquidity risk or market values".

[7] Nick Ferguson: credit crunch not over. The Daily Institutional Investor quotes the chairman of private equity group SGV Capital: "These things usually last longer rather than shorter, and that those predicting a quick end to the credit crunch are wrong. Investor willingness to back leveraged buyouts will remain subdued and funding will be more expensive ... I think the appetite will come back, but it'll be less than it was, and spreads will be higher".

[8] Vladimir Putin on liquidity conditions in Russia. From DII: "Russian authorities don't exclude the possibility of providing liquidity to Russian banks if necessary," President Putin said during a visit to Australia. In an attempt to alleviate the tighter liquidity, the Central Bank of Russia (CBR) injected a large amount of cash into the market by buying securities under repurchase agreements last month. The CBR also started earlier in August the first major purchase of rubles since 2002 to stop the ruble's depreciation against the dollar and the Euro.

[9] Jim Paulsen & "super-liquidity". The Wells Capital Management chief strategist does not buy the "liquidity crisis" story. "Everyone keeps saying this is a liquidity crisis. But I don't buy that," says Paulsen. "There has been superliquidity, and I still see lots of evidence of that ... If monetary restraint or illiquidity is not causing this crisis, monetary ease alone will not solve it. The good news, however, is we need only alter an attitude or emotion (such as confidence), which could happen quickly".