Send an Email
Favourite Sites
  • Whitney Tilson
  • Recommended Booklist

  • Favourite Blogs
  • Calculated Risk
  • Reflections on Value Investing
  • "The market can remain irrational longer than you can remain solvent" - John Maynard Keynes

    Thursday, December 27, 2007



    Every financial news service, blog or magazine is talking up the fed and ECB's flood of liquidity. Unfortunately almost no one has done the hard yards to determine if in fact there has been a net liquidity injection.

    I was perplexed as to why the fed would only reduce the funds rate by .25% at the same time as using alternate methods to increase liquidity. If they actually wanted to increase the supply of money all they needed to do was lower the fed funds rate which seems simple enough. Of course they didn't want to do that because inflation is so high.

    What they instead have tried to do, by slight of hand, is create the appearance of pumping money into the economy without actually doing so. This trick is supposed to improve confidence (the current crisis is in part one of confidence) as long as no one realizes what's going on.

    Well... John Hussman has done the work and determined that the 500bln that we heard about from the ECB was in fact a net withdrawl of liquidity (as it was done at the time of a repo auction when an even larger amount of repos had just expired). What we were not told is over 500bln of repos expired and the ECB added 500bln back - net results was a drain.

    A similar game is going on with the US Federal Reserve. They keep announcing liquidty injections, on days when repos exprie, which are vastly overstated once you net out the liquidty withdrawls from the repos. The net fed injection has only been around 20bln.

    The bottom line is that central banks are not massively reflating the economy. This is not so good for gold or other precious metals (though there are a lot of other bullish factors for them) and it greatly increases the chance of a recession sooner rather than later.
    Comments: Post a Comment

    << Home


    April 2003   May 2003   June 2003   July 2003   August 2003   September 2003   November 2003   January 2004   February 2004   March 2004   April 2004   May 2004   June 2004   July 2004   September 2004   October 2004   February 2005   March 2005   April 2005   May 2005   June 2005   July 2005   August 2005   September 2005   December 2005   April 2006   May 2006   June 2006   January 2007   December 2007   February 2008   April 2008   May 2008   June 2008   July 2008   August 2008   September 2008   October 2008   November 2008   December 2008   January 2009   April 2009   May 2009   July 2009   August 2009   September 2009   October 2009   January 2010   February 2010   April 2010   July 2010   August 2010   October 2010   November 2010   January 2011   February 2011   April 2011   June 2011  

    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
    To reduce Spam click here for my email address.

    This page is powered by Blogger. Isn't yours?