Thursday, November 29, 2007

LIQUIDITY WATCH. THE EURO, CHECKS & BALANCES, AND ... THE VIX
[Latest Global Dollar Liquidity measure: +14.1% annual growth rate; latest Endogenous Liquidity Index: -31.3%]

The euro, checks & balances, and the VIX; nimble; Fortis-China deal.

[1] The euro, checks & balances and ... the VIX. Über-bears and 'stagflationists' are on record with their bleak 1970s-2000s comparisons. Having written my MA thesis on the subject of Bretton Woods, what strikes me is this key difference: the euro. In a remarkable speech on 'Globalization', Alan Greenspan said: "Should globalization be allowed to proceed and thereby create an ever more flexible international financial system, history suggests that current imbalances will be defused with little disruption. And if other currencies, such as the euro, emerge to share the dollar's role as a global reserve currency, that process, too, is likely to be benign". In today's Financial Times, Richard Laming makes a similar point: "... the reality is that no currency and no national economy are strong enough to play that role any more. Welcome to the multi-polar world". Bingo! Checks and balances, ladies and gentlemen, are always to be welcomed. That may indeed be the message of the not-so-hot VIX. [Alan Greenspan: "Globalization", Bundesbank Lecture, 2004] [Richard Laming: "Europe has already learnt the lesson of a multi-polar world", Financial Times]

[2] Nimble. In his speech at the Council on Foreign Relations, Fed governor Donald Kohn uttered the L-word eleven times. (The all-time record-holder is his colleague Frederic Mishkin, who mentioned 'liquidity' no less than thirty times in an October 2007 speech). To be honest, I feel underwhelmed. Mr. Kohn lacks the technical brilliance of Randy Kroszner, or the rhetorical skills of Kevin Warsh. People were mesmerized by one sentence at the end of the speech: "... these uncertainties require flexible and pragmatic policymaking--nimble is the adjective I used a few weeks ago". [Donald L. Kohn: "Financial Markets and Central Banking", Federal Reserve Board]

[3] Another day, another deal. It looks like Gillian Tett, the Financial Times editor, was on to something when she wrote that "Gulf investors (could) be about to ride to the rescue of the US credit markets". Exhibit A: the Citigroup-ADIA deal, with terms that "are eerly similar to those Prince Alaweed bin Talal secured when he helped Citi out in 1991" (Lex Column). Ms. Tett should have been even more inclusive. The trend also involves Chinese investors and European banks: "Shares of Ping An Insurance (Group) Co (2318.HK: Quote, Profile, Research) jumped 5.13 percent after China's No.2 life insurer said it had paid 1.81 billion euros ($2.7 billion) for a stake in Europe's Fortis (FOR.AS: Quote, Profile, Research) (FOR.BR: Quote, Profile, Research)". [Reuters: "China's Ping An Insurance jumps amid Fortis deal"]

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