Recently, a reader inquired about an increasingly-used metric for assessing general liquidity conditions. Let’s break it down mango-style, shall we? The Liquidity Equation The Liquidity Equation in question can be succinctly summarized as follows: Now, let’s unpack this equation: A: The Fed Balance Sheet When the Federal Reserve’s balance sheet expands, it directly pumps reserves…
Category: Global Macro
Liquidity: Term Structure & Volatility
In a recent podcast, we had the privilege of gaining valuable insights from Michael Howel, renowned expert in tracking global liquidity. Michael Howel has repeatedly emphasized how we are now living in a world that is more of a refinancing mechanism; and the collateral needed to facilitate the refinancing becomes increasingly important. Term Structure: The…