Latest GLI (Global Liquidity Index)

by Michael J. Howell14. October 2013 22:00
Global Liquidity is a measure of World capital flows and a barometer of upcoming risk. It remains elevated and still generally supportive of asset markets, but the high 60.0 index (0-100 'normal') reading of our GLI (Global Liquidity Index) at end-September 2013 hides two important facts. First, the developed markets (70.8) enjoy much stronger liquidity conditions than Emerging Markets (16.0). Second, private sector liquidity (78.1) remains well in excess of Central Bank liquidity (37.4). These observations are important because they are not only almost opposite to the consensus view, but they seem to be driving markets. Most investors believe that Emerging Markets enjoy structurally strong private sector or 'good' money flows while Developed economies are largely being supported by cyclical Central Bank QE or 'bad' money flows: the reality is that the opposite is true. ['Bad' here refers to the negative effect on currencies]. This 'Quality Theory of Money' lies at the heart of our regular capital flow analysis and it explains why the gold price and EM currencies are simultaneous fragile.

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