Real economy acceleration is draining financial market liquidity
“The reason for that is not because central banks are tightening and withdrawing liquidity, it's because the real economy is actually accelerating or increasing its appetite to be more correct. It's working capital demands and that is sucking liquidity out of markets. Now, whether that is because of higher oil and energy costs, or whether it's because there's more inventory build, more capex spend, more economic activity going on, is kind of a moot point.”
“The dotted red line is a sine wave that we fitted to that, that has a frequency of 65 months, and that is basically slated or projecting that liquidity will bottom sometime in 2027 So you're looking at an autumn and a winter ahead in markets, and that's really the problem that we foresee.”
Rising commodity prices signal the liquidity cycle's end
“So what this is saying is, if you take bonds as being sensitive to liquidity, and you take commodities being late cycle, this is exactly the reason that that merger took place. So in other words, what ends the liquidity cycle is rising commodity prices.”
The Treasury is targeting low bond market volatility
“It seems as if the Treasury is directly targeting the move index. It wants bond volatility low. And so it should do, because look at the size of the basis trade that hedge funds are doing. There at the margin, big, big buyers of Treasuries and there's an awful lot of Treasuries to buy. So you can see what they're doing here.”
Crypto remains the most liquidity-sensitive asset class
“Crypto is a great parameter of liquidity in the system. It's the most liquidity sensitive for all assets, understandably in many cases. Now, what this is showing is the black line is a six-week change, and the only reason we're taking six weeks is that six weeks is it just takes the noise out of the data.”
“Our view has been that you're going to get this flattening definitively by the middle of the year. Why is it? It's because liquidity is going down. Why? Because economies are picking up. That's the different view.”
“The liquidity cycle, which dominates market movements, is basically inflicting lower. And we're in the season that we currently call speculation, which is a late one, take that as the autumn, precedes what we call turbulence. And turbulence is probably, as the name suggests, a very difficult time for risk assets.”
“The liquidity cycle, which dominates market movements, is basically inflicting lower. And we're in the season that we currently call speculation, which is a late one, take that as the autumn, precedes what we call turbulence. And turbulence is probably, as the name suggests, a very difficult time for risk assets.”
“Our view has been that you're going to get this flattening definitively by the middle of the year. Why is it? It's because liquidity is going down. Why? Because economies are picking up. That's the different view.”
The Treasury is targeting low bond market volatility
“It seems as if the Treasury is directly targeting the move index. It wants bond volatility low. And so it should do, because look at the size of the basis trade that hedge funds are doing. There at the margin, big, big buyers of Treasuries and there's an awful lot of Treasuries to buy. So you can see what they're doing here.”
Financial markets are moving toward a turbulence phase
“We've got four ducks here, economy, bond markets, equity market sectors and liquidity. And they all seem to be saying the same thing. So although we're not in turbulence yet, we're basically moving in that direction. Our view has been basically to pay back risk during this period. I mean, not get out of markets entirely, but we're basically moving more risk off, that's for sure.”
Crypto remains the most liquidity-sensitive asset class
“Crypto is a great parameter of liquidity in the system. It's the most liquidity sensitive for all assets, understandably in many cases. Now, what this is showing is the black line is a six-week change, and the only reason we're taking six weeks is that six weeks is it just takes the noise out of the data.”
Financial markets are moving toward a turbulence phase
“We've got four ducks here, economy, bond markets, equity market sectors and liquidity. And they all seem to be saying the same thing. So although we're not in turbulence yet, we're basically moving in that direction. Our view has been basically to pay back risk during this period. I mean, not get out of markets entirely, but we're basically moving more risk off, that's for sure.”
“The dotted red line is a sine wave that we fitted to that, that has a frequency of 65 months, and that is basically slated or projecting that liquidity will bottom sometime in 2027 So you're looking at an autumn and a winter ahead in markets, and that's really the problem that we foresee.”
Real economy acceleration is draining financial market liquidity
“The reason for that is not because central banks are tightening and withdrawing liquidity, it's because the real economy is actually accelerating or increasing its appetite to be more correct. It's working capital demands and that is sucking liquidity out of markets. Now, whether that is because of higher oil and energy costs, or whether it's because there's more inventory build, more capex spend, more economic activity going on, is kind of a moot point.”
Rising commodity prices signal the liquidity cycle's end
“So what this is saying is, if you take bonds as being sensitive to liquidity, and you take commodities being late cycle, this is exactly the reason that that merger took place. So in other words, what ends the liquidity cycle is rising commodity prices.”
