LIQUIDITY ROUNDUP. MORE ON LIQUIDITY & GLOBALIZATION
[Latest Global Dollar Liquidity Measure: +13.6% annual growth rate; latest Endogenous Liquidity Index: -16.7%]

Mishkin on globalization; El-Erian on Sovereign Wealth Funds; Bank Credit Analyst: "Sell yen!"; Endogenous Liquidity Watch.

[1] Fed Governor Mishkin on globalization. Does globalization lead to a more stable global economy? The jury is still out, says Mishkin: "Increasing global diversification lowers the likelihood that financial shocks will be concentrated in individual economies and thus lead to economic downturns ... However, as I have also emphasized in my work, financial globalization makes it easier for capital inflows to fuel excessive risk-taking on the part of financial institutions and allows financial shocks to be transmitted more readily across borders". ("Globalization, Macroeconomic Performance, and Monetary Policy"). The bottom line, in terms of liquidity analysis: keep an eye on financial volatility measures.

[2] El-Erian on SWFs. Mohamed El-Erian, the former and upcoming PIMCO executive, believes that "the US economy will slow substantially but not contract and that the rest of the world will continue gradually to decouple in a healthy manner". ("Foreign capital must not be blocked", Financial Times.) On the subject of Sovereign Wealth Funds, he adds: "In past systemic crises, the official sector has welcomed injections of liquidity from other sources while repairs were being undertaken. After all, such liquidity serves to facilitate adjustments occasioned by market dislocations".

[3] Bank Credit Analyst: sell yen! The top-notch Canadian consultant advises clients to play the yen carry trade – the prudent way: by selling the Japanese currency against the Swiss franc and the Singapore dollar.

[4] Endogenous Liquidity Watch. Our Endogenous Liquidity Index is little changed, as rising volatility measures (well done, Bill Luby!) are checked by falling CDS spreads and other components. Note that the Moody's Baa spread trades below 200 bps for the first time since mid-August, a bullish development in terms of my long-term model for risky assets.