LIQUIDITY ANALYSIS. THE LIQUIDITY CONUNDRUM INTENSIFIES
[Latest Global Dollar Liquidity measure: +11.3% annual growth rate; latest Endogenous Liquidity Index: -46.0%]
First, the good news. Surging platinum prices and well-behaved ten-year inflation breakevens have taken the market-based "Goldilocks-Stagflation" indicator to an all-time high of 0.93 (*). In addition, the latest Fed balance sheet reveals a $6.5bn increase in the Global Dollar Liquidity measure, driven by foreign central bank purchases of Treasury securities. The global economy is growing strongly!
At the same time, however, credit spreads continue to surge, which tends to portend bad news in terms of corporate earnings. Higher CDS- and cash spreads have pushed the Endogenous Liquidity Index to a new ... all-time low! I will fully admit it: (a) I find these market/economy conditions somewhat perplexing; (b) I have some catching up to do in terms of reading. I hope to come up with something interesting soon! Meanwhile, the extended trading range scenario is likely to prevail.
(*) Platinum-Gold = 1943/1906 = 2.14. Ten-year inflation breakevens = note yield - TIIPS yield = 230 bps. Goldilocks-Stagflation = 2.14/2.30 = 0.93.
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