What Is Important?

by Michael J. Howell20. April 2014 14:04
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.

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GLI (Global Liquidity Indexes) -- End-March 2014 Data Released

by Michael J. Howell14. April 2014 12:27

End-March GLI (Global Liquidity Index) data reported a decline in our World headline index to 53.0 from 54.2 in February (‘normal’ range 0-100), and set against a 2013 peak of 63.5. More than 60% of the World's Central Banks are now 'tight' according to our policy indicators. Admittedly, Developed Market Liquidity proved a tad stronger, but the much-needed monetary inflation is pausing. Experience warns that this can be dangerous for risk assets and real economic activity. At a minimum, we expect market volatility to rise, bonds to find support and the US dollar to remain firm. Equity investors may face an air-pocket, but there is no question in our mind that policy-makers will have to engage further doses of QE at some time in the future. Put bluntly, Q2 2014 may prove tricky for equities and the catalyst could be sharp downgrades in consensus estimates of Chinese economic growth.


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March 2014 - Latest Global Liquidity Data (GLI)

by Michael J. Howell12. March 2014 19:37
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.

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Global Liquidity Update

Latest GLI, Liquidity Data

by Michael J. Howell19. September 2013 16:54

This month we move to new 2010-weights for our GLI (Global Liquidity Indexes). EM get a larger share and Frontier Markets squeeze in with a 1.4% weighting.  Latest end-August 2013 data show our monthly GLI hit a reading of 59.2 ('normal' range 0-100). [Using the old weights, the GLI would be 70.8.] The overall index is one standard deviation above its rolling four-year average. The leaders in this cycle are unquestionably the US, Japan, Australia, Frontier Markets and the UK , while the Eurozone and EM are lagging. This looks to be a remarkably 'normal' cycle.







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Latest GLI - June Liquidity Update

by Michael J. Howell18. July 2013 23:59
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.

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Latest GLI March 2013

by Michael J. Howell19. April 2013 13:57

Our Global Liquidity Index (GLI) jumped to 64.5 in March 2013 (normal range 0-100). A large increase in Japan Central Bank liquidity and continued gains in US private sector liquidity more than offset another slide in Eurozone liquidity. EM liquidity remained low, although cross-border inflows into EM picked up a tad. Our data story still supports a strong US$. It also warns of Eurozone Crisis.

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GLI February 2013 Data Release

by Michael J. Howell13. March 2013 21:48
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.

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