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 !!!

Monday, January 12, 2015

Financial System Liquidity

Measured yr/yr, total system liquidity growth (including the Fed's balance sheet) grew by 6.7%.
this represents a substantial deceleration of growth from  11% early last year and reflects Fed
policy tightening via the QE 3 tapering and subsequent elimination. Liquidity growth has been
strong enough to fund faster economic and profits growth along with providing excess to to fund
the capital markets. With QE in the past, liquidity growth measured yr/yr is going to continue to
slow and should lead to more moderate sales and profits growth for business out ahead.

It is interesting to note that despite the strong liquidity gain in 2014, inflation pressure has
decelerated further instead of picking as it normally does. But, we are going through a period
global excess capacity especially in the basic materials and fuels sectors.

Note as well that cash available to larger investment organizations has been building in recent
months as policy towards equities appears to be turning more cautious. Cash ratios are up about
5.8% or $100 bil. This development is modest, but it has not been in evidence with consistency 
for quite some time.

The banking system is continuing its thaw. The loan book is growing is growing moderately.
Lenders are also expanding exposure to more conventional sectors. Balance sheet liquidity
remains exceptionally strong given that 2015 will represent the sixth year of recovery.

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