Friday, November 21, 2008

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

- Fed's Treasuries holdings + loans: $1,473.4bn (-$11.5bn)
- Other central banks' Treasuries holdings: $1,609.9bn (+$1.9bn) (*)
- Other central banks' agency securities: $891.2 (-$8.7bn) (*)
- Global Dollar Liquidity Measure: $3,974.4bn (-$18.3bn)

(*) Off-balance-sheet items

After five hectic weeks, a sense of normalcy is a welcome sign. The weekly Fed balance sheet has seen historic changes over the last couple of months. It has been amazing. Really. That's why I welcome the last installment, with its more normal variations. The Global Dollar Liquidity measure declines by $18.3bn, as the transitory character of some Fed operations kicks in, and as foreign CBs sell (quite understandably, one would imagine) some of their Fannie and Freddie positions. Having said that, the phenomenal year-on-year growth rates illustrate the sheer magnitude of central banks' commitment to ease policy at all costs. Thus, the Global Dollar Liquidity measure posts a +40.1% rate of increase, while my proxy for the monetary base increases by a mind-boggling ... 83.3%!

On the monetary policy front, note the aggressive stance adopted by the Swiss National Bank, shaving a full 100 bps off its target for the libor rate, now at 0.5%-1.5%. The resulting weakness of the Swiss franc is another symptom (IMHO) of a coming rally in risky assets.


Henry Bee said...

Great timing for your yesterday's post! Let's see if this rally has legs.


Agustin said...

Henry. Some technical analysts are telling us that the market still needs to fall a bit more. Perhaps. But my point is, when central banks pumps money like crazy, you buy stocks -- if only to protect yourself against the unavoidable depreciation of the currency.

As you say, let´s see if the rally has legs.



Henry Bee said...

Hello Agustin,

You added loans to your dollar liquidity calculations. Why not just use the "Reserve Bank Credit" instead? Why separate the US Treasury holdings and loans? Using "Reserve Bank Credit" yields a dollar liquidity index change of 63%, which yields a long-term buy signal.