The CrossBorder Capital Blog

‘Liquidity Investing’ Or Why The ‘Fed Model’ Is Wrong   ‘Standard asset allocation models, such as the ‘Fed model’, are derived from individual security analysis and pay scant attention to aggregate investor behaviour and the credit cycle. Instead, too much weight is placed on near-term reported profits, while changes in the discount factor are largely ignored. In this report we show that the bulk of variation in stock prices, up to approximately a 5-year horizon, is dominated by changes to the discount factor. The discount factor is moved around by inflation and liquidity. We propose an alternative framework that captures these changes.       See our latest published research, Global View: ‘Liquidity Investing’ Or Why The ‘Fed Model’ Is Wrong – 30 th June 2023  

What Is Fed ‘Liquidity’   ‘Fed Watching’ has returned to favour. Analysis of the Fed’s weekly H4.1 release is regularly poured over by analysts eager to gauge how much stimulus policy makers are providing. We show in this report what really matters, and how Fed Liquidity is only one part of the broader Global Liquidity picture.       See our latest published research, Global View: What Is Fed ‘Liquidity’ – 30 th June 2023  

Is The Inverted Yield Curve So Wrong?   The yield curve tells us more about the Global Liquidity cycle than it does about the business cycle. Consider a sequence that starts with the liquidity cycle, moves to the yield curve and ends with the business cycle. The first linkage is robust: the second between the yield curve and the business cycle is flaky. The latest yield curve inversion is exaggerated by highly negative term premia. These are in part explained by past tight liquidity conditions, but they also result from a structural lack of collateral. We report a different yield curve measure that seems less distorted. It points to a low point in US economic activity around mid-2023.       See our latest published research, Global View: Is The Inverted Yield Curve So Wrong? – 23 rd June 2023  

‘Not-QE, QE’ and ‘Not YCC, YCC’   After being crushed over the past 18 months, Global Liquidity is bottoming and turning higher. Financial stability concerns have helped to loosen policy and further gains will be spurred by policy easing as economic recession bites. Paradoxically, renewed QE-type policies operated in tandem by Central Banks and Finance Ministries may be preferred over aggressive cuts in policy interest rates. Our take supports a policy rate regime of ‘higher for longer’. The US seems to be leading the way with a ‘stealth QE’ post-SVB and latest talk of Treasury buybacks. More QE will come. After bailing-out US banks, the US Fed will soon have to bail-out the US government. The future fiscal arithmetic is challenging.     See our latest published research, Global View: ‘Not-QE, QE’ and ‘Not YCC, YCC’ – 16 th June 2023  

' Stealth' QE Looks Set To Soar     ·            Global Liquidity Index (GLI™) at 18.1 ('normal' range 0-100) ·            'Stealth' QE gaining momentum post-debt ceiling raise ·            Strong cross-border flows to EM (index 62.5), especially Asia ·            Investors seemingly impressed by skidding inflation   See our latest published research, Global Liquidity Latest – June 2023  

Weekly Global Liquidity Update – liquidity expanding at a faster pace   Global liquidity is expanding at a faster pace. In nominal terms, it has hit a record high! Expansions (and contractions) are never linear as evidenced in the charts. Importantly, the trend is clearly upwards     See our latest published research, Weekly Global Liquidity Update 9 th June 2023  

Global liquidity conditions continue to improve   Latest weekly measures derived from Central Bank balance sheet data show global liquidity growing by 4.5% on a 3-month annualised basis. The improvement on the previous week’s -2.2% is down to the stabilization of collateral values and fall in bond market volatility, both of which influence credit.     See our latest published research, Weekly Global Liquidity Update 2 nd June 2023