About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, January 04, 2012

Financial System Liquidity Issues

Broad Measure Of Credit Driven Liquidity ($11.9 Tril.)
The loan / lease book for the banking system has been growing, but the banks have cut back on
funding. Some banks have tightened credit while others are passing up super low spread assets
reflecting the Fed's ZIRP. Liquidity remains healthy, with the ratio of Govvies to C & I loans a
comfortable 1.28 to 1. The yr/yr growth of broad liquidity at 4.7% is low enough to keep the
Fed thinking about further domestic QE.

Federal Reserve Bank Credit
FRBC has jumped by $125 bil. or 4.3% over the past month. There has been some seasonal add,
but the vast bulk of the increase to global liquidity has been in the form of liquidity swaps to
CBs requiring help in coping with the EU financial crisis. FRBC is now running modestly above
the Fed's initial target set at the end of QE 2 this past June. Future FRBC balances are not going
to be easy to guess at, but continued sharp rises in liquidity swap credit would clearly suggest
a deepening EU mess.

Money Market Funds
Since mid-2009 the Total MMF balance has been drawn down by 32% or $1.2 tril.. Current
levels are now running well below 12/07 levels before the big build up as markets weakened.
With system "sideline cash" at far more modest levels, capital market asset preference in 2012,
should it be strong, will likely come at the expense of other market sectors.

Real Estate Loan Book
Building contract awards are running 11% above last year's depressed level and construction
spending has turned up. These developments should put more real estate loans on bank books
as the year progresses.

Bank Interest Earning Asset Charts (interactive)

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