LIQUIDITY WATCH. AN IMPROVING SITUATION -- BUT STILL NO LONG-TERM BULLISH SIGNAL
. Federal Reserve: "Factors Affecting Reserve Balances", November 12
- Fed's Treasuries holdings + loans: $1,484.9bn (+$97.0bn)
- Other central banks' Treasuries holdings: $1,608.0bn (+$20.3bn) (*)
- Other central banks' agency securities: $899.9 (-$6.6bn) (*)
- Global Dollar Liquidity Measure: $3,992.9bn (+$110.6bn)
(*) Off-balance-sheet items
My rather crude, but trusted and battle-tested long term buy/sell indicator for risky assets simply adds two rates of growth: that of the Global Dollar Liquidity measure, and that of the inverse of the Moody's Baa spread. It has been in bearish territory since August 2007. Given the phenomenal increase in the size of the Fed's balance sheet, it's time to take a fresh look at the numbers. After all, the Global Dollar Liquidity measure is growing at an astonishing 39.6% annual rate. Things seem to be improving at the margin: the indicator is now at its less bearish point since November 2007. Still, we need as much as 124 bps of improvement in the Moody's Baa spread to get a new bullish signal.