LIQUIDITY TALK ...
[Latest Global Dollar Liquidity measure: +12.7% annual growth rate; latest Endogenous Liquidity Index: -32.8%]

- The globalization of liquidity provision. The Federal Reserve, together with the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank is announcing measures "designed to address elevated pressures in short-term funding markets". Welcome to the globalization of liquidity provision! From the press release: "By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress". Well done! [Federal Reserve Board press release][ECB press release]

- Liquidity @ Financial Times: Martin Wolf. The FT's international economist makes some good points about the credibility of what he dubbs the Anglo-Saxon model of transactions-orientated financial capitalism: "Not for a long time will people listen to US officials lecture on the virtues of free financial markets with a straight face". This is what he has to say on liquidity: "What, more precisely, should a central bank do when liquidity dries up in important markets? Equally, the crisis suggests that liquidity has been significantly underpriced". These are all interesting points. Not so long ago, however, Mr. Wolf used to refer to the global economic landscape as a "new Golden Era". Perhaps we should discount both his earlier bullishness and his current bearishness. The credit squeez is not a "turning point for the world". [Martin Wolf: "Why the credit squeeze is a turning point for the world", Financial Times]

- The trading range asserts its rights. The S&P500 almost made it to 1525! In retrospect, I should have noted the VIX's refusal to trade below 20 as a warning sign (memo to self: keep better track of such divergences — they can be very useful!). Anyway, it was a wild ride: a gain of almost 8% in little more than two weeks. Bravo! The FOMC communiqué turned out to be the perfect excuse to take profits, especially when you realize that the Moody's Baa spread continues to forge ahead. At 259 bps, it now trades at levels not seen since March 2003 — and that does not bode well in terms of corporate profits. The trading range scenario is asserting its rights again. Having said that, what strikes me is the fact that the S&P500 —when valued against the "Goldilocks-Stagflation" index— does not look particularly expensive. We continue to see relatively strong global economic growth, and well-behaved inflation breakevens.