Thursday, February 14, 2008

[Latest Global Dollar Liquidity measure: +11.3% annual growth rate; latest Endogenous Liquidity Index: -46.2%

[1] Hail to the VIX! I am a big fan of market-based volatility indicators: the VIX, the VXN, the RVX, the V-DAX and others. (For all things VIX, see Bill Luby's blog — he's now analyzing the VXV, the new kid in town). The VIX is the key market proxy of the "Great Moderation" of the business cycle hypothesis, a key element in terms of endogenous liquidity. Here, the message is pretty clear: the Great Moderation is alive and well. The global economy is incredibly diverse; its multiple sources of demand and liquidity all but negate the possibility of a worldwide economic depression à la 1930s [VIX and more]

[2] Main Street v. Wall Street — again (Liquidity @ Financial Times). Don't miss this piece by Francesco Guerrera et al., which highlights the divergent views of (bearish) economists and (bullish) business people. One sentence summarises it well: "... economists are from Mars and businesspeople are from Venus". This is precisely what we are seeing at the Global Liquidity Blog: while credit markets are weak, world economic growth is strong. [Francesco Guerrera, James Politi & Aline van Duyn: "Full steam ahead?", Financial Times]

[3] The FT & "Liquidity reform" (Liquidity @ Financial Times). The L-word is mentioned no less than 15 times in this somewhat confusing FT editorial comment. The key part: "Most regulatory regimes today are far too simplistic: they must evolve to become complex simulations that test which events, from closure of the asset-backed bond market to a currency crisis, would put liquidity stress on a bank, and whether they are properly insured against it. Regulators also need to co-operate: a bank may seem illiquid in one country, but have mountains of cash waiting in another". [Financial Times: "Liquidity reform"]

No comments: