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The SS Fed Sails Into Uncharted and Probably Stormy Liquidity Seas

The composite liquidity indicator edged to a new high this week, barely above the range of the past 5 months. Even with that pause, the trend is in much the same longer term path it has been on since 2012. Primary Dealer cash, the largest component, continues to grow due to the Fed’s MBS purchases. Other components have popped in recent weeks particular foreign central bank purchases of Treasuries, and bank purchases. However, bank non Treasury trading accounts are nose-diving and their non Treasury investment accounts are flat. Those are yellow flags, indicating weakening underlying sentiment.

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Chart Updated weekly in the Professional Edition Money- Macro Liquidity Report.

So far the QE programs of the BoJ and ECB in the absence of the Fed have not resulted in growing US macro liquidity although the move up in the past several weeks could be a residual effect of those programs. If anything it is surprising that they have not had greater impact. It suggests that there are negative undercurrents, aka selling, driven by a change in the level of confidence among the world’s major investment and trading firms.

This report reviews and illustrates the individual components of the Macro Liquidity Composite, and additional contributing drivers, to give you a better handle on the context underlying and driving the technical market and economic trends.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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