The Macro Liquidity Index (MLI) has been hanging around 3 month highs. The Fed and foreign central banks (FCBs) continue to create liquidity, offsetting weakness in Government Sponsored Enterprise (GSE) credit creation. The S&P remains at peak trend levels relative to the primary sources of macroliquidity that we can measure, suggesting that an intermediate top is at hand. But it has been that way for months and the market has continued to advance. The indicator has suggested since November that market risk is at an extreme, but the guess here was that conditions would probably not be ripe for a correction until January. January came and went, but the correction didn’t, because the Fed and FCBs have been so generous. Click here to download complete report in pdf format (Professional Edition Subscribers).
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