Friday, December 21, 2007

. Federal Reserve: "Factors Affecting Reserve Balances", December 19

- Fed's Treasuries holdings: $788.4bn (+$6.0bn)
- Other central banks' Treasuries holdings: $1,224.6bn (-$4.0bn) (*)
- Other central banks' agency securities: $823.3 (+$11.6bn) (*)
- Global Dollar Liquidity Measure: $2,836.3bn (+$13.6bn)

(*) Off-balance-sheet items

[1] Decent numbers! After several weeks in the doldrums, the weekly Fed balance sheet finally manages to produce a set of decent numbers. The Global Dollar Liquidity measure surges on the back of renewed central bank activity — both domestically and internationally. Note also the pick up in lending through the discount window, now at levels not seen since the September 2001 terrorist attacks. The annual rate of growth of the Global Dollar Liquidity measure recovers somewhat, to 12.7% from 12.4%. But look at the growth rate of securirties held by the Federal Reserve itself: only 1.5%. Dare I say it? Dollars are ... scarce! There you have it.

[2] The VIX & the mini-rally. Is the current mini-rally in stocks sustainable? Remember the last attempt to get past 1525 on the S&P500. The VIX did not collaborate: its refusal to trade through 20 sounded the death knell of the rally. Given the dreadful signals sent by credit spreads (Moody's Baa spreads are still toying with four-year highs), the VIX offers the only glimmer of hope in terms of "endogenous liquidity". Watch it carefully!


Barry Ritholtz said...

I couldn't find any email address for you, but this post is up your alley:

Money Supply Growth? Its Much Worse Than That!, Jan15 ?

Agustin said...

Barry. Many thanks! I remember a similar story on your blog a couple of months ago. The way I see it, the main culprit is the shape of the yield curve. If demand for bank reserves declines, the Fed has but two options: either it destroys bank reserves to keep its Fed funds target intact, or it just lowers the target. Cheers.

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