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You Can Have One or The Other But Not Both

Liquidity indications were mixed this week, with the Fed still not doing much while foreign central banks were net sellers (see Treasury update). Commercial banks at least stopped dumping Treasuries but they are liquidating their trading accounts. The big plus was again bank inflows although they were not at the panic levels seen last week.

I’ve illustrated the massive outflows out of Europe into the US system by means of charting the deposit flows out of US subsidiaries of foreign banks. It is clear that European banks are suffering massive outflows and that this is resulting in huge inflows into US bank deposits. Some of these inflows are coming via the conduit of securities purchases, particularly Treasuries, but on occasion, such as Monday, stock purchases.

The overall liquidity trend has been uptrending at a snails pace since April, attributable almost entirely to these bank flows. “Slightly uptrending” is not sufficient to keep the markets levitated, given the constant pressure of new Treasury issuance (not to mention corporate and municipal) but it is enough to keep them from collapsing as long as these flows continue.

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1 Comment

  1. Ole Olesen

    Thanks again .. very good .. meticulous ! some of it i understand .. some Not … but over time i think ill get an understanding as i plow through the pages n charts !

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