Liquidity Update

Not surprisingly, the banking industry's real estate loan
book -- to include home equity loans -- has flattened out
since February, 2007. In typical lagged fashion, bank
funding growth has also slowed, with this huge measure of
liquidity actually declining slightly in the month of
June. Data on hedge fund lending capability is much harder
to come by, but the CMO sub prime and CDO junk markets have
been roiled enough to figure there is more caution. The
banking industry's C&I loan book is hopping. It is a safe
estimate that half of the volume gain here over the past twelve
months is deal related. On balance, credit driven liquidity,
which has supported all markets, is just starting to show some
growth momentum loss, with the riskiest markets paying the
heaviest price to date.

Keep in mind also that monthly data are showing a pick up in
industrial and commercial output and order flows for the US.
Since real economic activity lays first claim on available
liquidity, there could be some more pinching of flows available
for markets investment and speculation in the months ahead. It
is early in the game, but stay focused and do not automatically
dismiss the idea that your favorites will be exempt. Remember
the old Wall Street adage : "When they raid the whorehouse, they
arrest the piano player, too."