Traditional economic and financial analysis in our view falls short. A recent IMF study showed that out of 88 recessions Worldwide since 2010, the economics consensus had only managed to predict 11 three months before the year in question, and still 3 out of the 11 were mistakes: a hit rate of less than 10%. So what is missing! We concentrate on different things. Here is a quick re-cap: # we believe in the quality theory of money, rather than the quantity theory. Here money circulates because it has value, it does not have value because it circulates. This means that changes in its value (the exchange rate) cause monetary velocity to speed up and slow down # consequently changes in monetary velocity and changes in cross-border capital flows (which far outstrip trade flows) combine to disrupt asset markets, and should ultimately but not always affect the real economy through duration adjustment via the changing tempo of capital spending # a distinct financial cycle exists which can differ from the more familiar economic cycle # liquidity is money in the form of means of purchase, whereas savings is money as means of settlement. Both are important but at different points on the monetary circuit. Imbalances between liquidity and savings are the main cause behind swings in the financial cycle # separating liquidity from savings reflects a flow of funds view of the World, where sources of funds precede uses of funds and where flows and stocks are tied together for consistency. In other words, debt flows cannot continue to build for ever # the 'price of money' is the exchange rate not the interest rate. The latter is NOT set by Central Banks but by the market based on the marginal productivity of capital. Central Banks are monopoly supplies of means of settlement money in crises # monitoring the flow of liquidity and the pattern of cross-border flows is critical to understand the asset economy and the real economy. Liquidity is a leading indicator and we put much effort into tracking its movements across 80 economies on a monthly basis. These GLI (Global Liquidity Indexes) have been regularly produced since the mid-1980s and are available by subscription.

Headline end-February 2014 GLI (Global Liquidity Index) data confirm a clear inflection in overall data and, perhaps, even in the more buoyant Developed Economies, too? Admittedly the GLI ticked up slightly through the month to 53.4 ('normal' range 0-100) from a sub-par 47.9 in January. World Liquidity may still be just above its average; however, these values stand well-below the recent 61.9 peak. Excluding EM, the picture is far better, with the GLIX (excluding EM) rebounding to an index value of 75.3 or again close to its recent 76.1 December 2012 peak. Emerging Market liquidity remained at a low index value of 13.3, likely foreshadowing an earnings recession across the sector.

Latest end-June 2013 data show our monthly Global Liquidity Index (GLI) hit a reading of 75.4 ('normal' range 0-100). Stripping out the two weak liquidity regions, namely EM and Eurozone, the overall index would exceed 85, or more than two standard deviations above its rolling four-year average.

February 2013 data released today show our headline Global Liquidity Index (GLI) hit an index of 62.1, 'normal' range 0-100. This is up from the 58.1 January 2013 reading and is the highest value of the index for more than a year. Contact us for more information.