Thank you. This was in part motivated by what we’ve seen on social media and conversations with clients. The prevailing knowledge on this front is generally very superficial, and lacks the full picture. We spend a lot of time tracking conditions across the economy to create a real-time picture of what’s happening. The divergence between popular commentary and reality was just too large to ignore.
What about large liquidity increases from BOJ and PBOC, which according to Michael Howell and some others ofset FED's actions. He also claims, that even FED for the past few monts (past UK debt problems) is tiqtening predominately verbally but in fact not much.
He wrote "Although the Fed claims it is still doing QT (quantitative tightening), it has subtly moved the goalposts by re-defining QT narrowly as allowing Treasuries to roll-off its balance sheet, whereas most investors think of QT as withdrawing liquidity from money markets. In other words, the Fed is trying to have its cake and eat it! Fed Governor Waller, for example, recently suggested combining bank reserves with the volume of reverse repos (RRP) issued by the Fed as the best gauge of QT. However, this disguises the fact that over the past 22 weeks, since Sept 21st 2022, US banks’ reserves held at the Fed have essentially flatlined at close to the US$3 trillion threshold (av. US$3.072 trillion). Banks’ reserves are a decent guide to money market liquidity. We show this in chart five. A one standard deviation lower bound has been drawn on the chart which neatly coincides with the US$2.5 trillion minimum operating threshold as estimated by prominent US academics. Thus, the Fed is letting its balance sheet decline, but maintaining liquidity levels safely above these danger levels. Some change!"
"Evidence the effect this implied policy change has already had on US Treasury market liquidity, i.e. as measured by depth and bid/ ask spreads, in chart six. This market liquidity index troughed at around an reading of just below 10 (range 0-100) last September and has since rocketed back to around the 40-50 index level, or near ‘normal’ liquidity. This improvement parallels the decline in bond market volatility and may explain the spike higher in our measure of the shadow monetary base."
Much better alternative to whats on twitter recently
Thank you. This was in part motivated by what we’ve seen on social media and conversations with clients. The prevailing knowledge on this front is generally very superficial, and lacks the full picture. We spend a lot of time tracking conditions across the economy to create a real-time picture of what’s happening. The divergence between popular commentary and reality was just too large to ignore.
What about large liquidity increases from BOJ and PBOC, which according to Michael Howell and some others ofset FED's actions. He also claims, that even FED for the past few monts (past UK debt problems) is tiqtening predominately verbally but in fact not much.
He wrote "Although the Fed claims it is still doing QT (quantitative tightening), it has subtly moved the goalposts by re-defining QT narrowly as allowing Treasuries to roll-off its balance sheet, whereas most investors think of QT as withdrawing liquidity from money markets. In other words, the Fed is trying to have its cake and eat it! Fed Governor Waller, for example, recently suggested combining bank reserves with the volume of reverse repos (RRP) issued by the Fed as the best gauge of QT. However, this disguises the fact that over the past 22 weeks, since Sept 21st 2022, US banks’ reserves held at the Fed have essentially flatlined at close to the US$3 trillion threshold (av. US$3.072 trillion). Banks’ reserves are a decent guide to money market liquidity. We show this in chart five. A one standard deviation lower bound has been drawn on the chart which neatly coincides with the US$2.5 trillion minimum operating threshold as estimated by prominent US academics. Thus, the Fed is letting its balance sheet decline, but maintaining liquidity levels safely above these danger levels. Some change!"
"Evidence the effect this implied policy change has already had on US Treasury market liquidity, i.e. as measured by depth and bid/ ask spreads, in chart six. This market liquidity index troughed at around an reading of just below 10 (range 0-100) last September and has since rocketed back to around the 40-50 index level, or near ‘normal’ liquidity. This improvement parallels the decline in bond market volatility and may explain the spike higher in our measure of the shadow monetary base."
Brilliant
Thank you!
A masterpiece of an article!
Thank you!
Our pleasure.