Tuesday, October 16, 2007

[Latest Global Dollar Liquidity measure: +14.2% annual growth rate; latest Endogenous Liquidity Index: -14.1%]

Liquidity is a public good; PIMCO strategy; Bank Credit Analyst on the Fed.

[1] Liquidity @ Financial Times: liquidity is a public good. The debate about liquidity risk goes on. Jonathan Ward presents the case against over-regulation: "Liquidity is a public good, which banks are partly responsible for providing. For a bank to insure itself against the very worst liquidity crises on the assumption that there is no central bank would not be rational. Liquidity risk arises from different sources and is managed in different ways. It depends on the unpredictable collective behaviour of counterparties and depositors. It is not easily susceptible to quantification: most of the time liquidity costs are predictable and small; occasionally, liquidity collapses. Rigid 'one size fits all' rules are not appropriate here". [Jonathan Ward: "An international liquidity accord is no solution", Financial Times].

[2] PIMCO's Powers on investment strategy. (a) Liquidity & spreads: "At recent forums, we have noted that credit was trading at abnormally tight spreads because of a global glut of liquidity and bids from structured products for corporate exposure"; (b) Bullish on BRIC currencies: "We favor the Brazilian real, the Mexican peso and the Russian ruble"; (c) Steepening trades: "A review of prior Fed easing cycles shows that a curve steepening of two-year notes versus 10-year notes contributes more powerfully than a bet on rates"; (d) Cautiously bearish on volatility: "Our secular view is that the developing world will continue to grow at 8%-11% despite much slower growth in the developed world in the area of 2%, allowing the global economy to continue growing at 4%-5% ... As volatility has crept back into the market, prospects for volatility sales look more interesting going forward". [PIMCO: "William C. Powers Discusses PIMCO’s Cyclical Outlook and Global Strategy"].

[3] Bank Credit Analyst on the Fed. More easing ahead, but its timing remains elusive, says the Canadian global markets consultant: "The economy is soggy, not collapsing, giving the Fed time to assess how the outlook is shifting. Policy is still too tight relative to underlying economic trends, and we expect more easing in the coming year, taking the funds rate to 4% or below. But the timing will be less predictable than when the Fed was raising rates". [BCA Research: "What Next for Fed Policy?"].

1 comment:

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